Titan Company's Q3FY19 results (Outperformer) - Another blowout quarter led by jewelry
Q3FY19 result highlights
- Titan’s standalone net revenues increased by 34% yoy at Rs56.7bn (est: Rs53.9bn), EBITDA grew by 31% yoy (adj EBITDA growth of 47%) at Rs5.8bn(est: Rs5.8bn) and reported PAT grew by 35% yoy at Rs4.2bn. (est: Rs4.1bn). PAT adjusting for IL&FS provision was Rs4.86bn, up 58% yoy.
- Watch sales increased 18.8% yoy (volume growth of 16% yoy), jewellery sales were up 36.8% yoy (volume growth of 19.7% yoy) while Eyewear sales were up 39.7% yoy.
- Watches EBIT was down 34% yoy; margins declined by 680bps to 8.5% impacted by investments behind new launches & brand campaigns. Eyewear reported EBIT loss of Rs14.6m due to higher brand investments.
- Jewellery EBIT was up 69% yoy with margins increasing 250bps to 13.3% led by higher gross margins, lower discounts, inventory valuation loss recovered from the last quarter (Rs180m), lower advertising spends in the quarter as well as operating leverage driven by strong revenue growth.
- Overall, gross margins were down 70bps yoy. Staff cost was up by 12% yoy, ad spends increased by 2% yoy and other expenses (includes provision of Rs700m for IL&FS ICD exposure, cumulative provision is Rs990m of total exposure of Rs1.45bn) increased by 53% yoy. Resultant EBITDA margin declined by 20bp to 10.3%.
Key positives: Strong Jewellery division performance
Key negatives: Lower Watch division EBIT margins
Impact on financials: No material change in earnings estimates
Valuations & view
Titan delivered yet another strong quarter with strong revenue growth across segments. Jewellery sales growth in 4Q (~20-22%) is likely to be lower than 3Q as well as margin expansion is unlikely given the high base. However, Titan’s strong execution skills, accelerated store expansion, & new launches will further drive share gains & aid overall division sales (factoring 20.5% sales CAGR for jewellery division over FY19-21E). This coupled with turnaround in watches business and improving eyewear performance, we expect strong earnings CAGR of 24% over FY19-21E, highest among the discretionary consumer coverage stocks. Hence, premium valuations are justified and likely to sustain. Maintain Outperformer.​
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