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Research
Titan Industries - Short wedding list disappoints - Edelweiss
Posted On : 2012-08-03 20:42:20( TIMEZONE : IST )
Titan Industries (Titan) Q1FY13 performance was below our expectation due to a sharp fall in wedding dates (the lowest in last eight years) and consumer sentiments. Key positives were: (1) 22% growth in studded jewellery, (2) 264bps YoY expansion in others margin and a sequential improvement in watches margin (despite 2% excise hike and rupee pressure), (3) PED remaining profitable, (4) 19% YoY LTL growth in Helios and (5) a stable expansion plan (limited impact on margins as 75% will be franchise owned). Key negatives were: (1) 21% YoY decline in jewellery volume on high base of 32% and challenging macro, (2) 8% YoY LTL decline in Goldplus and a meager 3% LTL growth in Tanishq, (3) decline in watches volume by 3% YoY (~17% price hike), (4) customer decline of 2% YoY in jewellery (against a growth of 4%, 8% and 10% for Q4FY12, Q3FY12 and Q1FY12 respectively) and (5) higher inventory levels. We expect the direct import of gold to potentially improve margin by ~1% (starting H2FY13). Despite the management softening its stance on revenue guidance, it is hopeful of achieving INR10bn in PBT (24% YoY growth). Maintain 'BUY'.
Bleak performance, jewellery looses sheen
Jewellery sales grew at 7.8% YoY with the share of studded at 25%; margin flat at 10.2%. Despite the customer decline (mainly in south India), the ticket size increased 11% YoY.
Watches volume dips, PED sustains profitability trend
Watches segment clocked a revenue growth of 14.4% YoY. EBIT margin declined 127bps YoY due to a 2% excise hike and rupee depreciation. Eyewear grew at 6% YoY though it is not profitable yet (losses lesser than expectations). Precision engineering (PED) maintained the profitability.
Outlook and valuations: Positive; maintain 'BUY'
We like Titan's "Affordable Diamonds" campaign, new brand launches (Mia for women, fq for teens) and promotions to counter the slowdown (discretionary spends slows: Jubilant SSG slowdown from 26.2% to 22.3% QoQ; 2% YoY vol growth in Asian Paints). At CMP, the stock is trading at 28.7x and 23.3x FY13E and FY14E EPS respectively. We maintain 'BUY' recommendation and 'Sector Outperformer' rating on the stock.
