Titan Company Ltd (Titan)- 1QFY20- Rising Gold prices impacting the Jewellery biz, Growth Guidance intact for the long- term.

Dated: 7th August 2019

Quarterly Performance:

Key Highlights:

1. Net sales for the quarter were Rs 52,082 mn, a growth of 16% YoY. The Jewelry/ Watches/ Eyewear business revenues grew 14%/ 20%/ 13% YoY respectively. Other which includes SKINN (skincare) & Taneira (sarees) grew 53% YoY.
2. EBITDA stood at Rs 5,734 mn, a growth of 18% YoY. EBITDA margins were 11.1% vs 10.8% in 1QFY19.
3. As an impact of Ind AS- 116, Titan reported an increase in the depreciation and interest of 86% and 211% YoY respectively.
4. The impact of Ind AS- 116 in the P&L for Titan for the quarter was an increase in interest cost and depreciation by Rs 200 mn and Rs 330 mn respectively and a reduction in rent by Rs 490 mn, resulting in EBITDA going up by Rs 510 mn and PBT lower by Rs 20 mn.
5. The net profit was Rs 3,662 mn, an increase of 10% YoY. Tax rate stood at 29%.

Management Commentary:

1. Management has cut its 22% growth guidance for the jewellery business. They expect the demand for the jewellery to be impacted in 2QFY20 as well due to the rising gold prices. They expect some revival in the demand for the jewellery by September this year.
2. Management expects a recovery in demand with stabilisation of the gold prices.
3. Management highlighted wedding jewellery sales have been lower than their expectations due to a smaller number of wedding days in 1st half of wedding season.
4. The performance from the South region was good whereas West and East India continue to remain most impacted post spike in the gold price
5. They expect a 20% plus growth in the jewellery business in the 2HFY20E.
6. They have maintained the SSS (same-store sales) growth guidance of 14-15% YoY.
7. The watch business has shown a 20% YoY growth in this quarter on the back of the institutional order from TCS of Rs 560 m. Adjusted for this, watch business revenue grew 11% YoY.
8. There was a one-off expense of Rs 400 mn for the Business Associate Meet which impacted the EBIT margins according to the management. This is a non- recurring expense.
9. Management expects an improvement in the margins with revenue growth coming in accompanied by the increased demand in the market.

Consensus Estimate (Source: market screener website)

• The closing price of Titan is Rs 1,036/- on 07-Aug-19. It traded at 52x / 42x/ 35x the consensus EPS for FY 20E / FY 21E/ FY22E EPS of Rs 19.9 / 24.5/ 29.3 respectively.
• Consensus target price of Rs 1,204/- implies a PE of 49x on FY21E EPS of Rs 24.5.