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Titan Industries: The shine is back - Views on News from Equitymaster
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Titan Industries: The shine is back
Jul 27, 2010

Watches and jewellery major Titan Industries has announced its 1QFY11 results. The company has reported a 42% YoY growth in its sales while net profits have grown by 77% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 42% YoY during 1QFY11. Growth led by robust performance from both the segments of watches and jewellery.
  • Operating margins remain stable at around 9% during the quarter.
  • Aided by strong sales growth and lower depreciation and interest charges, net profits are up 77% YoY.


Financial performance snapshot
(Rs m) 1QFY10 1QFY11 Change
Sales 8,828 12,528 41.9%
Expenditure 8,035 11,415 42.1%
Operating profit (EBDITA) 793 1,113 40.3%
Operating profit margin (%) 9.0% 8.9%  
Other income 10 81 709.0%
Interest 76 25 -66.7%
Depreciation 90 82 -8.6%
Profit before tax 637 1,086 70.5%
Tax 177 274 54.6%
Profit after tax/(loss) 460 813 76.5%
Net profit margin (%) 5.2% 6.5%  
No. of shares 44.4 44.4  
Diluted earnings per share (Rs)*   65.0  
P/E ratio (x)*   43.4  
* On a trailing 12 months basis

What has driven performance in 1QFY11?
  • Titan has reported a strong 42% YoY growth in sales during 1QFY11. This growth has been driven by both the key segments of watches and jewellery. While the former grew by 22% YoY, sales for the latter were up almost 50% YoY during the quarter. Such a strong performance from Titan is a true indicator of the recovery in consumer spending. The company has in fact carried on the momentum that it saw during the previous quarter. The management has indicated that the company’s overall sales performance during the quarter was led by good retail growth across all its brands and retail chains. A good wedding season specifically aided the performance of its jewellery segment during 1QFY11.

    Segment wise performance
      1QFY10 1QFY11 Change
    Watches      
    Revenue (Rs m) 2,086 2,540 21.8%
    % share 23.6% 20.2%
    PBIT margin 14.1% 16.4%  
    Jewellery      
    Revenue (Rs m) 6,356 9,505 49.6%
    % share< 72.0% 75.5%
    PBIT margin 8.1% 7.2%  
    Others      
    Revenue (Rs m) 391 538 37.5%
    % share 4.4% 4.3%
    PBIT margin -22.6% 3.1%  
    Total*      
    Revenue (Rs m) 8,833 12,584 42.5%
    PBIT margin 8.1% 8.9%  
    * Excluding inter-segment adjustments; 'Others' segment includes businesses like
    eye-wear, precision engineering, machine building, and clocks

  • Titan now boasts of a chain of 568 stores (combined for watches and jewellery) and is aggressively expanding its network across both the key business segments.

  • Titan recorded stable operating margins of around 9% during 1QFY11. The company however saw a rise in its raw material costs, led by higher gold prices. This is the reason the PBIT (profit before interest and tax) margins of the jewellery segment declined to 7.2% during 1QFY11, from 8.1% in 1QFY10. Margins for the watches business however improved to 16.4%, from 14.1% in 1QFY10. What is more, the company’s ‘other’ businesses came back into the black this quarter and reported positive PBIT margins of 3.1%. These businesses include eye-wear, precision engineering, machine building, and clocks.

  • Led by a strong growth in net sales and stable operating margins, and also on account of lower interest and depreciation charges, Titan reported a robust 77% YoY growth in its net profits during 1QFY11. Interest costs declined by 67% YoY during the quarter, seemingly on the back of the company’s debt reduction measures.

What to expect?
At the current price of Rs 2,824, the stock is trading at a multiple of 25.5 times our estimated FY13 earnings. Given Titan’s robust 1QFY11 performance however, we would have to revise upwards our forward estimates on the company. We would update you with our latest view on the stock post that update. ResearchPro subscribers can watch out this space for the update.

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