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Titan: Robust growth in watches - Views on News from Equitymaster
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Titan: Robust growth in watches
Nov 1, 2012

Titan Industries declared the results for the second quarter of financial year 2013 (2QFY13). The company reported 8.6% YoY growth in sales, while net profit has risen by 21.3% YoY for the quarter. Here is our analysis of the result.

Performance summary
  • Net sales increased by 8.6% YoY during the quarter and by 8.9% YoY during the 6 month period ended September 2012.
  • Segmentwise, watches grew by 13% YoY, jewellery by 5.7% YoY and other business comprising precision engineering, eye wear and accessories grew by 49.4% YoY during the quarter.
  • Operating profits were up by 19.4% YoY during the quarter. This was on account of lower rise in operating expenses which grew by 7.4% YoY. Operating margins expanded by 1% during the quarter.
  • Interest and depreciation rose by 36.6% YoY and 23.3% YoY respectively resulting in net profit growth of 21.3% YoY.

Financial performance snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 20,963 22,760 8.6% 41,169 44,816 8.9%
Expenditure 18,874 20,266 7.4% 37,158 40,203 8.2%
Operating profit (EBDITA) 2,089 2,494 19.4% 4,010 4,614 15.1%
EBDITA margin (%) 10.0% 11.0%   9.7% 10.3%  
Other income 205 238 16.1% 438 490 11.8%
Interest 89 121 36.6% 176 247 40.2%
Depreciation &amortisation 106 130 23.3% 205 254 23.7%
Profit before tax 2,100 2,481 18.2% 4,067 4,603 13.2%
Tax 615 679 10.4% 1,148 1,241 8.1%
Profit after tax 1,485 1,801 21.3% 2,920 3,362 15.2%
Net profit margin (%) 7.1% 7.9%   7.1% 7.5%  
No. of shares (m)           887.78
Diluted earnings per share (Rs)*           7.26
P/E (x)           35.82
(*trailing twelve month earings)

What has driven performance in 2QFY13?
  • Net sales increased by 8.6% YoY during the quarter and by 8.9% YoY during the 6 month period ended September 2012.

  • Segmentwise, watches continued to grow by 13% YoY despite gloomy economic scenario aided by price increases taken during the year. Jewellery grew by 5.7% YoY due to high prices of gold. However, a better share of studded jewellery in the sales mix helped jewellery post better profit margins in the quarter. Others including precision engineering and eyewear grew by a healthy 49.4% YoY.

      2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Watches
    Revenue (Rs m) 4,174 4,718 13.0% 7,328 8,325 13.6%
    % of total revenues 19.7% 20.6%   17.6% 18.4%  
    EBIT margin 16.1% 11.6%   15.7% 12.6%  
    Jewellery
    Revenue (Rs m) 16,315 17,239 5.7% 32,786 34,995 6.7%
    % of total revenues 77.2% 75.2%   78.9% 77.4%  
    EBIT margin 9.7% 12.5%   9.9% 11.3%  
    Others
    Revenue (Rs m) 652 974 49.4% 1,426 1,870 31.1%
    % of total revenues 3.1% 4.2%   3.4% 4.1%  
    EBIT margin -2.1% -4.4%   -3.5% -3.2%  
    Total 21,141 22,931   41,541 45,189  

  • Among operating expenditure, employee costs increased the most up by 28% YoY during the quarter. Consumption of raw material remained at last year levels. Overall operating expenditure went up by 7.5% YoY.

  • Thus operating profits were up by 19.4% YoY during the quarter. Operating margins expanded by 1% during the quarter led mainly by rise in profit margins of jewellery segment.

  • Interest and depreciation rose by 36.6% YoY and 23.3% YoY respectively.

  • Net profits grew by 21.3% YoY during the quarter and by 15.2% YoY during the year till date. Net profit margins expanded by 0.8% during the quarter and by 0.4% during the 6 month period.

What to expect?
Titan Industries is planning to open many stores going forward. The company is also looking at stimulating demand through advertisements. All this will come at a cost to the company thereby hurting its profitability in future. Although, at present, increased share of studded jewellery has resulted in temporary rise in margins, this situation is not sustainable in the long run. Heightening competition is also set to be a cause of major concern in the branded jewellery segment. At the current price of Rs 260, the stock is trading at a high multiple of 36 times its trailing twelve month earnings. We maintain our Sell view on the stock at current valuations.

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