Titan Industries - Slowdown starts reflecting, finally!! - Prabhudas Lilladher

Slowdown is here; Jewellery volumes de-grow 21%, Watches down 3%: Sales, EBITDA and PAT came in at Rs22.05 bn (up 9%), Rs 2.12bn (up 10%) and Rs 1.56bn (up 9%) as against our expectations of Rs 25.7bn, Rs2.31bn and Rs1.71bn.Revenue growth was lowest in the last 11 quarters, reflecting the weakness in consumer spends despite higher base (Jewellery revenues up 71% in base qtr), closure of some stores for ~7 days in April owing to industry strike and fewer wedding days in 1QFY13 vs. 1QFY12. Jewellery volumes declined 21% while Watches registered 3% de-growth. Customer growth, a metric used by Titan to measure the underlying strength of its franchise, posted a relatively flat 2.4% decline. While TTAN has drawn up a robust retail expansion plan to offset the slowdown in SSG, we expect next few quarters to remain subdued given the well entrenched weakness in consumer sentiments, especially in discretionary spends. Titan added 20 stores during the quarter, taking the total count to 847 stores with more than 1.08m sq.ft of operational space. Management, in the call indicated better July performance than 1QFY13 and interestingly, maintained its 30% PAT growth guidance for FY13e.

- Gold margins flat; Watches EBIT decline: Jewellery EBIT posted 9% YoY growth, while margins remained flat at 10.2%. Studded Jewellery salience was 25% for the quarter with 1Q being a seasonally weak quarter for studded jewellery. Gold margins are expected to remain strong as savings delivered by direct imports of Gold will flow to EBIT. Watches margins declined 140bps YoY. Nonetheless, entire benefit of pricing improvement (13%) did not reflect in margins owing to hedging strategy.

- Revise estimates downward: While TITAN management maintained 30% growth guidance we have revised our sales and profit estimates down by 4-5% for FY13e and FY14e, to incorporate lower than estimated volume and sales growth. Though we like Titan's strategy of expanding its presence in Lifestyle segments and its continued dominance in core categories, we see no immediate recovery in near term performance Maintain 'BUY' with a revised one-year forward TP of Rs255 (26x FY14e).

Source : Equity Bulls

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