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MOSL: TITAN COMPANY (Neutral)-Margins surprise, jewelry growth guidance muted

Titan Company: Margins surprise, jewelry growth guidance muted

(TTAN IN, Mkt Cap USD15.9b, CMP INR1276, TP INR1320, 3% Upside, Neutral)

 

• While TTAN's revenue growth was in line with the guidance, the positive surprise from the result was the jewelry margin of 13% and the EBITDA margin of 12%.
• Despite 15% retail jewelry YoY sales growth, TTAN has maintained its 2HFY20 guidance of 11-13% jewelry sales growth, considering Jan’20 sales growth of only 8%.
• Recovery prospects in their largest segment, in which TTAN had reported 20%+ growth in FY18/FY19, are still unclear. Near term valuations are also fair leading us to maintain Neutral. 

Sales growth in line, lower other expenses drive margin expansion

• 3QFY20 consolidated revenue grew 11.2% YoY to INR65.3b (v/s est. INR64.1b). Adj. EBITDA increased 32.6% YoY to INR7.8b (v/s est. INR7b) while Adj. PBT grew 12.4% YoY to INR6.7b (v/s est. INR6b). Recurring PAT was up 19.9% YoY to INR4.9b (v/s est. INR4.7b). 3QFY20 EBITDA/PBT/PAT are adjusted for INR253m one-off retiral benefits given to ex-MD Mr. Bhaskar Bhat.
• gross margins were down 10bp YoY to 25.5%; lower other expenses (-240bp YoY) and ad spends (-10bp YoY) were offset by higher staff costs (+40bp YoY). Adj. EBITDA margins expanded 190bp YoY to 12% (v/s est. 10.9%).
• segmental performance: (a) Reported jewelry sales grew 12.2% YoY to INR56.1b (-5% volume growth, 9% SSSG growth) with Adj. EBIT margins up 10bp YoY to 13%. (b) Sales of Watches declined 2.2% YoY (-10% volume growth) to INR6.3b; EBIT margin was down 50bp YoY to 6.2% in 3QFY20.
• 9MFY20 sales/adj. EBITDA/adj. PAT growth stood at 9.7%/21.8%/12.4% YoY.