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Titan: Better than expected - Views on News from Equitymaster
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Titan: Better than expected
Apr 30, 2010

Titan Industries has announced its FY10 results. The company has reported a 22.9% YoY and nearly 58% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • On a standalone basis, Titan Industries report 22.9% YoY growth in revenues in FY10, led by rebound in consumption.
  • Costs grow at a slower pace compared to growth in revenues leading to 0.7% expansion in EBITDA margins in FY10.
  • On the back of 34% YoY growth in operating profits and lower interest cost, bottomline reports 57.5% YoY growth.
  • The board of the company has recommended dividend of Rs 15 per share.


Financial performance snapshot
  Standalone Consolidated
(Rs m) FY09 FY10 Change FY09 FY10 Change
Net sales 38,034 46,744 22.9% 38,326 46,772 22.0%
Expenditure 35,089 42,795 22.0% 35,288 42,812 21.3%
Operating profit (EBDITA) 2,945 3,950 34.1% 3,039 3,960 30.3%
EBDITA margin (%) 7.7% 8.4%   7.9% 8.5%  
Other income 53 119 124.6% 53 127 139.7%
Interest 294 254 -13.6% 288 254 -11.8%
Depreciation &amortisation 418 601 43.8% 424 607 43.3%
Profit before tax 2,286 3,213 40.6% 2,381 3,226 35.5%
Tax 696 710 2.0% 741 713 -3.8%
Profit after tax 1,590 2,503 57.5% 1,639 2,513 53.3%
Net profit margin (%) 4.2% 5.4%   4.3% 5.4%  
No. of shares (m) 44 44        
Diluted earnings per share (Rs)*   56.4        
P/E (x)   37.7        
(*trailing twelve month earnings)

What has driven performance in FY10?
  • In FY10, Titan Industries' standalone revenues grew by nearly 23% YoY on account of growth across its business segments – time products and jewellery. The jewellery segment that accounts for over 70% of the total revenues, reported nearly 27% YoY growth in revenues. The high gold prices during the previous year had impacted jewellery business to some extent. During the fiscal ended FY10, gold prices have not witnessed significant surge. Thus, consumer sentiment remained unaffected. Moreover, the growth has been backed by economic revival.

  • The growth in revenues of time products (contributes 15% to 20% the total revenues) stood at 13% YoY. The balances 3% of revenues come from the other business that includes eyewear, precision engineering, etc. This segment reported growth of 11% YoY during FY10. The growth in this line of segment has largely been supported by the performance of 1QFY10. Otherwise, in 2QFY10 and 3QFY10, this segment has reported lower growth. This is primarily on account of postponement / cancellation of orders from overseas customers in the Precision Engineering division. The company has not revealed numbers for the quarter ended March, 2010. So it would be difficult to comment whether this segment has also started finding takers like the other two (jewellery and time products) business segments.

  • Apart from rebound in consumption, Titan Industries' ability to understand changing consumer preferences and accordingly streamline its products enabled it to push sales in an increasingly competitive scenario.

  • The operating margins have expanded marginally by 0.7%. This is mainly on account of slower growth in cost of operation as compared to growth in revenues. As a percentage of sales, the company was able to lower staff, advertising and other expenses. On the other hand, raw materials consumed have increased as a percentage of sales basis. Apart from cost control measures initiated by the company, change in inventory valuation may have also helped contain growth in costs. The company has changed its inventory valuation method to reflect accurate and appropriate presentation of the financial statements.

  • On the back of 34% YoY growth in operating profits, lower interest costs and higher other income, net profits grew by nearly 58% YoY. During the year, the company has also adopted new principles of hedging and derivative accounting for accurate reflection of operational performance and appropriate presentation of financial statements. The same has also resulted in higher profit before taxes of Rs 134 m.

What to expect?
Titan, on account of its strong brand portfolio, its ability to understand changing consumer preferences and ability to accordingly streamline its products, has been able to withstand the difficult situation better than others. In future too, we expect the company to continue to grow on the back of its strong position and its new initiatives. The sector provides immense potential on account of low penetration levels and on account of rising aspiration levels of Indian consumers. The company's new initiatives, (prescription eyewear and precision engineering) taken with a view to sweat assets and sustain profitability are expected to improve shareholder returns in the future. While these two segments are not expected to contribute significantly to the topline in the coming two to three years, it will help the company sustain profitability going forward.

At the current price of Rs 2,126, the stock is trading at a multiple of 26.2 times our estimated FY12 earnings. It has far exceeded our target price. The company has outperformed our estimates owing to adoption of new principles for more accurate presentation of operational performance and tax adjustments for earlier years and interest there on. The current stock price has factored in the future growth prospects and leaves little scope for upside potential. We shall soon update our research report on the stock.

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