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Titan: Jewellery business leads the fall - Views on News from Equitymaster
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Titan: Jewellery business leads the fall
Aug 6, 2014

Titan Industries declared its results for the first quarter of financial year 2015 (1QFY15). The company reported 7.6% YoY fall in sales, while net profit fell by 2.9% YoY for the quarter. Here is our analysis of the results.

Performance summary
  • Net sales fell by 7.6% YoY during the quarter. Segment wise, jewellery revenue fell by 10.1% YoY, Watches segment grew by 10.4% YoY. The seemingly poor performance in the jewellery segment was due to the high base effect of the same quarter in the previous financial year wherein the segment had witnessed a 47% growth in sales when gold prices had fallen sharply. 'Others' segment which includes precision engineering, eyewear and accessories grew by a marginal 3.8% YoY.
  • Total raw material cost as a percentage of sales this quarter have decreased from 78.4% in 1QFY14 to 75.7% in 1QFY15. This has led to decrease in operating expenditure by 8.6%, which is more than the fall in sales.
  • Due to lower operating expenditure, operating profit has increased by 5.1% YoY despite a fall in top line. As a result, EBITDA margin has increased to 8.3% YoY in 1QFY15 from 7.3% in the corresponding quarter of previous year.
  • Other income for the company grew by 8.7% YoY during 1QFY15.
  • While deprecation cost grew by 66.6% YoY, Interest cost grew by 105.3% YoY during the quarter.
  • Impacted by substantial increases in depreciation and interest costs, profit after tax fell by 2.9% YoY during the quarter.

Financial performance snapshot
(Rs m) 1QFY14 1QFY15 Change
Net sales 30,878 28,537 -7.6%
Expenditure 28,627 26,171 -8.6%
Operating profit (EBDITA) 2,251 2,366 5.1%
EBDITA margin (%) 7.3% 8.3%  
Other income 581 632 8.7%
Interest 170 350 105.3%
Depreciation & amortisation 146 243 66.6%
Profit before tax 2,515 2,405 -4.4%
Tax 691 632 -8.5%
Profit after tax 1,825 1,773 -2.9%
Net profit margin (%) 5.9% 6.2%  
No. of shares (m)   888.7  
Reported earnings per share (Rs)*   8.3  
P/E (x)*   41.5  
(*trailing twelve months)

What has driven performance in 1QFY15?
  • Titan's sales fall was driven by fall in the revenues of the Jewellery segment to the tune of 10.1% YoY. This was mainly due to the high base of the same quarter of the previous year wherein the sales of the segment had grown by a whopping 47% YoY on the back of a sharp fall in gold prices at the time. Also, the Jewellery business currently continues to face regulatory pressures that have had an adverse impact on its sales. The Watches and 'Others' segment saw a growth in sales of 10.4% YoY and 3.8% YoY respectively.

  • Operating profit for the company has increased by 5.1% as against the fall in sales. EBITDA margin has thus grown by 1% to 8.3% YoY. A fall in raw material costs as a percentage of sales from 78.4% of sales to 75.7% of sales was the biggest contributor towards this expansion in operating margins.

  • Segment wise, EBIT margin in Watches division has increased to 11% as against 9.6% in 1QFY14. EBIT margin for Jewellery has increased to 9.4% vs 7.8% in the corresponding quarter last year.

  • The relatively better operating performance helped the company post a marginal decline of 2.9% YoY at the profit after tax level during the quarter.

    Standalone segment wise break up
      1QFY14 1QFY15 Change
    Watches
    Revenue (Rs m) 3,987 4,400 10.4%
    % of total revenues 12.8% 15.2%  
    EBIT margin 9.6% 11.0%  
    Jewellery
    Revenue (Rs m) 25,866 23,253 -10.1%
    % of total revenues 83.2% 80.4%  
    EBIT margin 7.8% 9.4%  
    Others
    Revenue (Rs m) 1,232 1,278 3.8%
    % of total revenues 4.0% 4.4%  
    EBIT margin 2.2% 0.4%  
    Total* 31,085 28,931  
What to expect?
The company is counting on stimulating demand for all its product categories through advertising campaigns and new product launches. Further, the company's retail expansion drive continued with a net addition of 22 stores across all its businesses during the quarter, thus ending the period with a retail area of over 1.48 mn sq ft across the country. With this, the company's retail presence is now 1,100 stores strong. This is further going to see a rise as the management has in place growth plans for all its retail businesses of watches, jewellery and eyewear.

The management has indicated that consumer discretionary spending during the quarter saw far more stability that that witnessed in the past few quarters. With the stability in the political environment, consumer sentiment is positive.

At the current price of Rs 344, the stock is trading at 41.5 times its trailing twelve month earnings. We are in the process of meeting the management and reviewing our estimates for the stock. Since the stock is fairly priced, we recommend investors to not buy the stock at current levels.

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