Titan Industries - Strong growth in jewellery and watches drive revenues - Reliance Securities

Key highlights of the result

- Net Sales up ~28% yoy: Titan Industries' (TIL) Standalone Net Sales for 4QFY2012 grew ~28% yoy to Rs2,282cr (Rs1,778cr in 4QFY2011), whereas, it declined ~7% qoq (Rs2440cr in 3QFY2012). The increase in top-line on yoy basis was on the back of the strong growth in sales in different segments like Watches (up ~25% yoy) and Jewellery (up ~30% yoy), and also aided by better average realizations.

- OPMs up 273bp yoy: Titan reported Standalone EBITDA of Rs208cr in 4QFY2012, an increase of ~84% yoy. EBITDA margin increased a significant 273bp yoy, due to reduction in purchase of finished goods (down 495bp yoy), employee costs (down 311bp yoy), selling & administrative expenses (down 152bp yoy) and other expenses (down 144 yoy). On a sequential basis, EBITDA margin was lower by 13bp.

- Net Profit grew ~72% yoy: The Standalone Net Profit for 4QFY2012 increased ~72% yoy to ~Rs144cr (~Rs84cr in 4QFY2011), which was primarily a reflection of the strong operational performance of the company at the top-line and the EBITDA levels.

Outlook and Valuation

In 4QFY2012, Titan Industries posted results which were in-line with our expectations. For FY2012, the company's Consolidated Net Sales grew ~35% to Rs8,849cr from Rs6,534cr (FY2011) and Consolidated Net Profit grew ~39% to Rs602cr. Going forward, we expect ~23% CAGR in Net Sales over FY2012-14E to Rs13,381cr. TIL's strong distribution channel (increasing retail store every year in each segment) and high brand equity would support the company's growth. Titan has also started a new jewellery manufacturing unit in Pantnagar, which is expected to contribute ~Rs250cr in FY2013E. We expect ~22% CAGR in Net Profit over FY2012-14E, due to strong revenue growth & higher realizations.

With our previous target price on Titan being achieved in February 2012, we now roll over to FY2014E, which gives us a target price of Rs270. At the CMP of Rs233, the stock is trading at a P/E of 27.5x and 23.3x its FY2013E and FY2014E EPS respectively. Hence, we recommend a Buy on Titan.

Risks to the view

- High volatility in gold prices could affect the demand for jewellery and gold products
- Greater-than-expected slowdown in the Indian economy could affect the demand of the company's products.

Source : Equity Bulls

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