Titan Industries - Revenue growth slowing down... - ICICIdirect

Titan Industries' (Titan) Q4FY13 results surprised us positively on the margin front but revenues were lower than our estimates. Titan reported sales, EBITDA and PAT of Rs. 2,593.1 crore (up 14.8% YoY), Rs. 266.5 crore (up 28.7% YoY) and Rs. 185.0 crore (up 28.5% YoY), respectively. The operating margin at 10.3% was higher than our estimate, backed by better-than-expected margins in the jewellery segment. A higher-thanexpected share of studded jewellery (32%) aided this margin expansion. The watches segment continues to remain weak with the rate of growth coming down for four consecutive quarters. We have revised our earnings estimates downwards to capture the weak performance in the watches segment. Considering the regulatory overhang and the pressure on the watch segment (owing to reduced discretionary spends), we are cautiously positive on Titan Industries. We maintain our BUY rating with a revised target price of Rs. 299 (24.0x FY15E EPS of Rs. 12.5).

Promotions in diamond segment aids jewellery segment sales growth

The jewellery segment witnessed 16.3% YoY growth in revenues. EBIT margins improved 176 bps YoY to 11.9% owing to a higher share of studded jewellery (32%). Titan maintained its target of 40% share of studded jewellery (over two to three years). The recent gold price correction has led to an improvement in volumes in April 2013.

Pace of growth declines in watches segment

Titan's ailing watches segment continues to witness weaker revenue growth. Titan reported 10% & 1% volume de-growth in Q4FY13 & FY13, respectively. Revenues have been impacted due to the dual impact of price hikes (taken to cushion margin) & rising inflation (impacting discretionary spends). Further, margins were impacted (EBIT margin down 204 bps YoY to 10.9%) due to high input costs & excise duty hike.

Macro headwinds, lower growth make us cautiously positive

Amid a weak economic environment, Titan is also witnessing various regulatory issues (like increased customs duty, reduced lease period for gold, etc). However, we expect an improvement in operating margin (led by higher share of studded jewellery) to cushion bottomline growth. Hence, we remain cautiously positive and maintain our BUY rating, albeit with a revised target price of Rs. 299 (24.0x FY15E EPS of Rs. 12.5).

Source : Equity Bulls

Keywords