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Titan: Jewellery add glitter to margins - Views on News from Equitymaster

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Titan: Jewellery add glitter to margins
May 2, 2011

Titan Industries declared the results for the fourth quarter and full year of financial year 2011 (FY11). The company reported 36% YoY growth in sales in 4QFY11, while net profit has risen by 64% YoY. For the full year the sales and net profits have grown by 40% and 72% YoY respectively. Here is our analysis of the result.

Performance summary
  • Net sales grow by 36% YoY during 4QFY11, 40% YoY for the full year FY11.
  • Operating margins declined by 1.7% to 6% during the quarter. This is because of higher employee costs and advertising costs. However, for the FY11, company reported an increase in operating margin by 0.5%.
  • Substantial fall in interest payments and depreciation charges boosted the net profit growth for the quarter as well as the full year periods.
  • The company has declared dividend of Rs 25 per share and which implies a dividend yield of 0.6% at present.


Financial performance snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 13,114 17,779 35.6% 46,750 65,216 39.5%
Expenditure 12,109 16,718 38.1% 42,795 59,353 38.7%
Operating profit (EBDITA) 1,005 1,062 5.7% 3,955 5,864 48.2%
EBDITA margin (%) 7.7% 6.0%   8.5% 9.0%  
Other income 45 240 435.5% 113 553 390.5%
Interest 99 13 -87.2% 254 82 -67.7%
Depreciation & amortisation 331 91 -72.4% 601 345 -42.6%
Profit before tax 619 1,198 93.3% 3,213 5,990 86.4%
Extraordinary expenses - -   - -  
Tax 107 360 236.1% 710 1,686 137.4%
Profit after tax 512 838 63.5% 2,503 4,304 71.9%
Net profit margin (%) 3.9% 4.7%   5.4% 6.6%  
No. of shares (m)         44.4  
Diluted earnings per share (Rs)*         96.9  
P/E (x)         41.6  
(*trailing twelve month earnings)

What has driven performance in 4QFY11?
  • Titan's jewellery segment grew by around 39% YoY during the quarter, and formed 77% of the company's total sales for FY11. The company's growing focus on stone studded jewellery and luxury segment has resulted in this outstanding performance. The mass market Goldplus brand has also been doing well.

  • The company's second major business segment of watches saw relatively lower growth in sales as compared to jewellery. It grew by 17% during the quarter and 23% for the full year.

  • The other businesses which include eye wear, clocks, and precision engineering components grew by 90% during the last quarter. During the year, Titan launched collection of frames and lenses targeting different consumer segments.

    Segmental break-up
      4QFY10 4QFY11 Change FY10 FY11 Change
    Watches            
    Revenue (Rs m) 2,818 3,290 16.8% 10,268 12,665 23.3%
    % of total revenues 21.4% 18.5%   21.9% 19.4%  
    EBIT margin 7.7% 3.0%   14.1% 14.7%  
    Jewellery            
    Revenue (Rs m) 9,915 13,733 38.5% 35,042 50,272 43.5%
    % of total revenues 75.4% 77.1%   74.8% 76.9%  
    EBIT margin 7.2% 8.7%   7.3% 8.5%  
    Others            
    Revenue (Rs m) 413 788 90.5% 1,518 2,439 60.7%
    % of total revenues 3.1% 4.4%   3.2% 3.7%  
    EBIT margin -31.2% -12.6%   -25.6% -7.4%  

  • PBIT margin of watches was slightly better as compared to last year. It stands at 14.7% as against 14.1%. However, jewellery margins have been seeing constant improvements. The company now earns 9% operating margins on jewellery business.

  • Titan was able to contain interest costs in the high interest rate scenario. This along with the growth in other incomes has helped the company in posting net profit growth of 64% during the quarter and 72% during the year.

What to expect?
At the current price of Rs 4,035 the stock is trading at a multiple of 42 times its trailing 12-months earnings. The last year has seen Titan grow in all segments. Going forward, the focus will be on high margin earning stone studded jewellery business as also the eye wear. The company intends to expand within the country as well as abroad. It has declared dividend of 250% along with bonus issue in the ratio 1:1. Also, the board has approved the sub division of equity shares of Rs 10 each into ten equity shares of Rs 1 each. In view of the above announcements, we are in the process of revising our estimates and will update our subscribers shortly.

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