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Titan: Glittering all the way - Views on News from Equitymaster

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Titan: Glittering all the way
Oct 28, 2010

Titan Industries has declared its 2QFY11 results. The company has reported 34% YoY growth in sales while net profit has risen 65% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 34% YoY during 2QFY11, 37% YoY during the first half 1HFY11.
  • Operating margins improve to 11.3% during the quarter, from 9.4% in 2QFY10. This is largely on the back of lower raw material costs (as a percentage of sales).
  • Led by good sales growth, stronger operating margins, and higher other income, net profit surges by 65% YoY during the quarter and 69% YoY during the first half.


Financial performance snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Sales 11,468 15,360 33.9% 20,296 27,887 37.4%
Expenditure 10,387 13,624 31.2% 18,422 25,039 35.9%
Operating profit (EBDIT) 1,081 1,736 60.5% 1,874 2,848 52.0%
Operating profit margin (%) 9.4% 11.3%   9.2% 10.2%  
Other income 32 82 157.1% 42 162 289.4%
Interest expense 50 24 -52.7% 126 49 -61.1%
Depreciation 89 86 -3.5% 179 168 -6.0%
Profit before tax 974 1,707 75.4% 1,611 2,794 73.4%
Tax 198 430 117.5% 375 703 87.8%
Profit after tax/(loss) 776 1,278 64.7% 1,236 2,091 69.1%
Net profit margin (%) 6.8% 8.3%   6.1% 7.5%  
No. of shares       44.4 44.4  
Diluted Earnings per share (Rs)*         76.2  
P/E ratio (x)*         46.4  
* On a trailing 12 months basis

What has driven performance in 2QFY11?
  • Titan recorded a strong 34% YoY growth in its net sales during the quarter. This was largely led by a strong performance from the companyís jewellery segment. This segment grew by 37% YoY during the quarter, and formed 73% of the companyís total sales. The company benefited from a recovery in retail sales of its premium jewellery brand Tanishq. This is interesting given that such a growth has been on the back of record gold prices, and speaks volumes about Indiansí affinity to the yellow metal and other jewellery.
      2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Watches            
    Revenue (Rs m) 2,955 3,584 21.3% 5,041 6,124 21.5%
    % of total revenues 25.7% 23.3%   24.8% 21.9%  
    EBIT margin 19.7% 21.3%   17.4% 19.3%  
    Jewellery            
    Revenue (Rs m) 8,226 11,246 36.7% 14,582 20,751 42.3%
    % of total revenues 71.6% 73.1%   71.7% 74.2%  
    EBIT margin 7.0% 8.9%   7.5% 8.1%  
    Others            
    Revenue (Rs m) 310 560 80.6% 702 1,098 56.5%
    % of total revenues 2.7% 3.6%   3.5% 3.9%  
    EBIT margin -35.7% -8.3%   -28.4% -2.7%  

    The companyís second major business segment of watches grew by 21% YoY during the quarter. The management has indicated that it is focusing on making the companyí watch brands as premium accessories and is working towards upgrading its price points and retail showrooms to match the same. The management has also indicated that its premium watches, ones that are priced at above Rs 10,000, are doing well as consumers are up-trading in a recovering economy. Anyways, Titanís third business segment, which includes products like eye wear, clocks, and precision engineering components, grew at a robust pace of 81% YoY during the quarter.

  • The benefits of customers up-trading was also seen in Titanís operating margins, which improved to 11.3% during 2QFY11, from 9.4% in 2QFY10. PBIT margin (profit before interest and taxes) of the watches business improved to 21.3%, from 19.7% in the corresponding previous quarter. Lower raw material costs also helped the company in its margin improvement. The management has indicated that the company will be able to sustain margins at the current levels owing to the strength of its brands. As far as the PBIT margin of the jewellery segment is concerned, even it improved from 7% in 2QFY10 to 8.9% in 2QFY11.

  • Titan grew its net profits at a robust rate of 65% YoY during the quarter. This was helped by the strong growth in net sales as also the improvement in operating margins. Higher other income, and lower interest and depreciation also helped the bottomline performance of the company.

What to expect?
At the current price of Rs 3,540, the stock is trading at a multiple of 46.4 times its trailing 12-months earnings and 32 times our estimated FY13 earnings. Given Titanís 1HFY11 performance it is likely that the company may exceed our full year FY11 estimates. However despite the fact that we would now have to revise these estimates upwards, we believe the stock does not present a profit potential even from a 2-3 years perspective. As such, we have a cautious view on the same. ResearchPro subscribers can watch out this space for the update.

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