Motilal Oswal neutral on Titan Industries

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Motilal Oswal neutral on Titan Industries

Motilal Oswal has maintained neutral rating on Titan Industries with a target price of Rs 213, in its July 28, 2011 research report.

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Motilal Oswal has maintained neutral rating on Titan Industries with a target price of Rs 213, in its July 28, 2011 research report.

"Titan Industries (TTAN) 1QFY12 results were above estimates with adjusted PAT of INR1,434m (against our estimate of INR1.1b). Growth was led by 35% volume growth and 170bp margin expansion in the jewelry business. The watch business disappointed with 180bp decline YoY in EBIT margins. Consumer demand is a concern as the management indicated decline in growth in July across formats. Watch stores reported lower footfalls as well. We are increasing FY12 and FY13 estimates by 6% each year to factor in higher sales growth in jewelry and lower margins in the watch business. We estimate 18% volume growth and flat margins for the jewelry business for the rest of FY12, which is a key risk to our estimates. The stock trades at 31.6x FY12E EPS of INR 7.2 and 24.5x FY13E EPS of INR9.3 and PAT CAGR of 38%."

"TTAN's jewelry sales increased 72% and EBIT increased 112% due to 65% LTL sales growth. The company added only one Tanishq store in 1QFY12, which reined in overheads. Gold jewelry grew faster due to a sharp increase in diamond prices. A requirement of PAN card and KYC for jewelry purchases of over INR0.5m is unlikely to impact sales as jewelry accounts for just 10% of Tanishq sales. Sales at the watch business grew 23% and EBIT grew 10% as margins contracted 180bp. The sales mix improved with Titan, Fastrack and other licensed brands doing well at the expense of Sonata. Margin decline was due to increased overheads for retail expansion. TTAN added two Helios and eight World of Titan stores in 1QFY12. Eyewear sales increased over 50%, LTL sales growth in eyewear was ~25%. TTAN added 19 Titan Eye Plus stores in 1QFY12. The PE (precision engineering) business recovered and the outlook seems positive for the rest of FY12. The management is confident of ending the year with a positive bottom line. Maintain Neutral for target of Rs 213," says Motilal Oswal research report.

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