Titan Company's Q4FY18 results (Outperformer) - Jewellery margins surprise… growth outlook getting stronger!
Q4FY18 result highlights
- Titan’s net revenues increased by 11.7% yoy at Rs39.2bn (est: Rs39.1bn), EBITDA grew by 67% yoy at Rs4.55bn(est: Rs3.5bn) and reported PAT grew by 41% yoy at Rs2.8bn(est: Rs2.4bn).
- Watch sales decreased 1.7% yoy, jewellery sales were up 13% yoy while Eyewear sales were down 2.6% yoy. Watches EBIT was up 190% yoy; margins expanded 470bps to 7.1%. Jewellery EBIT was up 60% yoy with margins expanding by 400bps to 13.7% (includes hedging gain of Rs180m) led by higher studded ratio and improved gold jewellery mix.
- Gross margins improved by 230bps. Staff cost was up by 21% yoy, advertising spends declined by 23% yoy and other expenses increased by 2% yoy. Resultant EBITDA increased by 67% yoy with EBITDA margin expansion of 380bp to 11.6%.
- Other income was down 27% yoy; depreciation and Interest expense were up 34% & 51% yoy resulting in PBT (bei) growth of 61% yoy. Exceptional item of Rs807m pertain to provision for impairment of investment in Favre Leuba of Rs750m and Rs57m for VRS scheme.
Key positives: Expansion in Jewellery EBIT margins
Key negatives: Muted Eyewear and watch division performance
Impact on financials: Factoring strong performance, we increase FY19E/20E earnings by 8%/10%.
Valuations & view
Titan’s accelerated revenue and EBITDA performance, especially in jewellery, has been impressive. With a faster expansion plan and weakening competitive intensity (easier access to capital), Titan, the jewellery market leader, stands as the biggest beneficiary of the industry moving towards the organized direction. Strong growth and leverage led margin improvement in jewellery coupled with a gradually improving non jewellery business are expected to drive 25% earnings CAGR over FY18-20E. With the most credible play in the listed jewellery space, Titan will continue to command a scarcity as well as a hyper growth premium (valuations are at 44xFY20E earnings and 31xFY20E EV/ EBITDA) over peers in the discretionary consumer space. Maintain Outperformer.
Asian Paints is engaged in manufacturing of a range of decorative paints, varnishes, enamels, and black & synthetic resins. Co., through its subsidiaries, also manufactures specialty industrial chemicals and vinyl pyridine latex products which are used in the manufacture of rubber tires.
Titan is engaged in the watch division where Co. manufactures and sells a variety of watches with varying price range within India and overseas; in the jewelry division where Co. works through Tanishq and Zoya. Tanishq has a range of jewelry studded with diamonds or coloured gems in 18 kt gold, 22 kt pure gold and platinum; and Zoya is a chain of luxury jewelry boutiques; in the eyewear division where Titan Eye+ retails products which showcase contemporary designs, coupled with optical exams with Sankara Nethralaya; and in the precision engineering division, Co. sells its components globally and helps build machinery.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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