Titan announced its 2QFY05 performance recently. The restructuring initiatives taken by the company over the last three years is reflected in the improvement in margins at the net level. While topline growth remains robust, on account of lower margins in the jewellery division, operating margin has declined in 2QFY05 and in 1HFY05.
Operating profit (EBDITA)
EBDITA margin (%)
Profit before tax
Profit after tax/(loss)
Net profit margin (%)
No. of shares (m)
Diluted earnings per share (Rs)*
Price to earnings ratio (x)
What is the company's business?
Titan is the country’s market leader in the organised watch (56% of FY04 sales) and jewellery (44% of FY04 sales) segments. Watches account for 73% of overall PBIT while 27% is accounted by the jewellery division. After expanding rapidly in the international markets, Titan has scaled down its presence and is focusing on building the export business in a gradual manner.
What has driven performance in 2QFY05?
Jewellery coming out of restructuring: Last year in the same quarter, the jewellery division witnessed a lower growth in sales on account of the restructuring exercise. To that extent, in the second quarter of this year, the YoY rise is on the higher side. Nevertheless, the topline growth in also on account of the company's aggressive marketing and expansion exercise. With the festive season drawing close, the time products division also has posted higher growth in 2QFY05. We believe that the growth in the second half of the fiscal is likely to be on the higher side, as this is typically the peak season.
Revenues - Time products
Revenues - jewellery
Overall EBIT margin
Margins: its a seasonal game:While first quarter of the fiscal is generally a lean season for watch and jewellery sales, the third and fourth quarter are peak seasons. To that extent, margins of the divisions are likely to exhibit volatility (as is evident from the graph below). However, since 1QFY03, the overall trend in margins is showing an upward bias and we believe that there is a scope for improvement in the future as well. The move to trim global operations and increase focus in the domestic and Middle East markets is paying off. However, the launch of the eye-care range is likely to result in increased marketing spend in FY05 and to that extent, margin expansion will be limited.
The interest cost is falling: While Titan has historically managed to grow revenues in light of its strong distribution network and brands, it has failed to reflect in terms of better profitability. While the margins at the operating level has been improving, higher interest burden was eating away a large part of profits (38% of operating profits in FY04). With the restructuring, the company has been successful in reducing the working capital requirements, which in turn has enabled it to pay off debts. The graph indicates the YoY change in interest cost and the improvement in net margins.
What to expect?
The stock currently trades at Rs 170 implying a price to earnings multiple of 79 times (18 times our expected earnings). The market capitalisation to sales ratio works out to be 0.8 times. While we believe that profitability is likely to improve significantly in the second half (being the peak season), the stock has run up very sharply over the last six months and at the current juncture, valuations seems stretched. Much depends on the pace of the restructuring, which will decide whether current valuations are justified.
Titan Industries declared its results for the third quarter of financial year 2017 (3QFY17). While topline growth was 14.7% YoY, net profit grew by 13.1% YoY during the quarter. Here is our analysis of the results.
Titan Industries declared its results for the second quarter of financial year 2017 (2QFY17). While topline growth was flat, net profit grew by 23.5% YoY during the quarter. Here is our analysis of the results.
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