FREE

Titan Company's Q3FY20 results (Neutral) - Tracking as per guidance…

Q3FY20 result highlights

• Standalone net rev. grew by 9.4% yoy at Rs62.1bn (est: Rs62bn), EBITDA grew 26% yoy at Rs7.4bn (IDFCe: Rs6.9bn) and PAT was up 13% yoy at Rs4.7bn. (IDFCe: Rs4.8bn). However, adj. for Rs700m ILFS provision in the base, Rs550m adj. of IndAS116 and Rs250m one-off gratuity in Q3FY20, EBITDA is flat yoy at Rs7.06bn (margin down 10bp yoy to 11.4%). We also note that EBITDA was aided by other operating income which stood at Rs1bn vs qtrly run-rate of Rs0.5bn.
• Jewellery sales grew by 10.6% yoy (Retail growth strong at 15%, reported growth is lower due to Rs2bn institutional order in the base; LTL growth stood at 9% yoy) aided by festive demand and share gains. Gold grammage declined 5% yoy. Jewellery EBIT grew by 7.8% yoy with 30bps margin decline to 13%. Studded ratio was up 200bps to 27%. Caratlane grew by 68% yoy & turned profitable at EBIT level.
• Watch sales de-grew 2.4% yoy, EBIT fell 4% yoy with margin contraction of 20bps yoy to 8.3%. Eyewear sales were up 3% yoy, division reported EBIT loss of 67m vs loss of Rs15m in base quarter.
• Overall, GM declined by 20bp yoy to 24.9%. Staff cost was up by 33% yoy (Provision of retirement benefit to MD of Rs250m), Ad spends grew 2% yoy and other expenses (includes IND AS benefit of Rs550m) fell by 22% yoy. Resultant EBITDA margin was up 160bp yoy to 11.9%.
• Jewellery guidance maintained for Q4: Jan growth stood at 8%. Management is confident of posting 11-13% rev. growth in Q4FY20E as activations launched from 2^nd week of Jan are performing well.

Key positives: Inline rev performance in jewellery, decent margin.

Key negatives: Weak performance in Watches/Eyewear segment.

Impact on financials: Cut earnings by 1.7%/4% each for FY20E/21E.

Valuations & view

Titan has maintained its jewellery segment rev guidance for Q4FY20E and will provide FY21E guidance along in Q4FY20E call. Store additions were strong with 13/34 Tanishq stores added in Q3FY20/9MFY20. We are building in 18.6% jewellery segment growth in FY21E; however, given the weak macro, high & volatile gold prices and lower no of wedding dates in FY21E, our estimates could be at risk. We would wait management’s guidance to anchor our expectations around the same. Given premium valuations and limited scope for disappointment, we maintain our Neutral stance even as we roll-forward our PT to 50x FY22E EPS. We are a strong believer in Titan’s long-term story (low market-share in a highly unorganized, large market with best in class consumer understanding and offering); but we await a pick-up in consumer sentiments and better entry point.