Titan Industries - Strong Q1 but regulatory uncertainty persists: HOLD - Religare

TITAN's Q1 net sales/EBITDA/PAT grew by a strong 42%/15.6%/16.9% with topline growth led by the jewellery business (+47% YoY; grammage up 67% YoY) even as watches clocked a mere 11.4% growth. Jewellery margins were hit by a lower studded share and inventory losses (~Rs 340mn). We raise our FY14/FY15 earnings by 7%/9% and our Mar'14 TP to Rs 265 (from Rs 225) due to reversal to the gold-on-lease scheme. However, gold availability and further regulatory risks remain key stock overhangs. HOLD.

- Net sales growth led by jewellery business: TTAN's net sales grew 42% YoY to Rs 26.1bn led by a strong 67% YoY grammage growth. Studded growth was flat during the quarter as the share of studded jewellery dropped to 16% on (a) lower discretionary spends (b) higher plain gold sales due to lower gold prices. The performance of watches remained subdued, with the segment growing by just 11.4% YoY on 3% higher volumes YoY. The eyewear segment saw a strong 36% YoY growth during the quarter.

- EBITDA margins down 180bps:EBITDA grew 15.6% YoY to Rs 2.45bn but TTAN booked an inventory loss of Rs 340mn on one of its fixed-grammage schemes, adjusting for which EBITDA growth would stand at 30%. Jewellery EBIT margins were down 140bps YoY to 8.8% on a higher share of plain gold/lower share of studded jewellery. Watches margins too plunged 370bps YoY to 10.3% on higher employee costs (one-time wage settlement in 3 years) and INR depreciation. The company took price hikes in watches and plans more hikes in the near term. PAT grew 16.9% YoY to Rs 1.82bn (but to Rs 2.1bn ex-inventory losses).

- Maintain HOLD with a revised Mar'14 TP of Rs 265: We upgrade our FY14/FY15 earnings by ~7%/9% on account of reversal to the gold-on-lease scheme, leading to a revised Mar'14 TP of Rs 265 (from Rs 225). Maintain HOLD.

Source : Equity Bulls

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