neutral on the front foot; one-offs mar profitability - 2qfy19 - hdfc sec... · non-jewellery...

RESULTS REVIEW 2QFY19 10 NOV 2018

Titan NEUTRAL

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

On the front foot; one-offs mar profitability Coming off a rather painful 1Q, channel checks suggest that most big-box jewellers grew at 10-15% in 2Q. In this back-drop, Titan’s 2Q performance seems rather commendable as the market share gain narrative is on track, albeit one-offs marred profitability. One-offs include 1. Franchisee takeover costs (Rs. 150 mn), 2. Inventory valuation loss (Rs. 180 mn) and 3. A Rs. 290 mn provision towards IL&FS exposure (Total exposure of Rs. 1.45bn). Titan’s revenue grew by 27.5% (vs est. 26%). EBIT/APAT growth at 9%/18.5% resp to 4.3bn/Rs3.3bn (a 15%/8.5% miss). Jewellery biz grew by ~29% (est. 24%) to Rs 36.4bn largely volume-led (+24% YoY). Even after adjusting for the one-offs; margins remained under pressure in the mainstay jewellery biz. (adj. jewellery EBIT margins: 11.3%, down 100bp YoY). Watches biz surprised positively – grew 17.5% YoY to Rs 6.78bn (vs est. Rs 6.28bn; an 8% beat) as volumes took off (+21% YoY) led by new launches. Expansion in margins was even more pronounced 212bps to 16.4% (392bps beat). While margins should taper off to ~14-15% by exit FY19, the watches biz is clearly treading its recovery path well. Most tailwinds baked in. However, given the underlying RoCE profile (we prefer to look at Gold on lease and Gold schemes as debt) of 16-17%, the want from growth and its

longevity leaves little on the table for investors at current valuations. (trading at 39x Sept-20E EPS). We maintain our estimates and DCF-based TP of Rs 820/sh (implying a P/E of 38x Sept-20E EPS). Reiterate NEUTRAL. Earning Call Highlights for the quarter 2Q seems promising: Jewellery revenue grew 27.5%.

Retail channel/SSSG grew 38%/32% YoY respectively. Grammage grew 24% YoY. Jewellery EBIT cracked 195bp to 10.4% (est: 13.5%). The festive season (3Q) has had a good start – 29% YoY growth in retail sales for the first 40 days; reported revenue is estimated to be higher. Management is confident of a strong 3Q.

Non-jewellery treading the recovery path well: As Titan continues to launch new product and fill price point gaps in its non-jewellery portfolio; both watches and eyewear seem to be treading the recovery path well. Eyewear grew at an impressive 19% YoY; Growth was primarily backed by introduction of more assortments at affordable prices. Management intends to step up customer acquisition in eyewear to 3.7mn in (vs 2.7m in FY18).

Near-term outlook: 2H is expected to be strong given a confluence of factors – 1. More wedding days, 2. Festive Season. We have built in revenue/EBITDA/PAT CAGR of 20/25/24% respectively over FY18-21E.

Financial Summary (Rs mn) 2QFY19 2QFY18 YoY (%) 1QFY19 QoQ (%) FY17 FY18 FY19E FY20E FY21E Net Revenue 45,672 35,822 27.5 44,510 2.6 132,608 161,198 196,639 235,179 279,205 EBITDA 4,689 4,219 11.2 4,829 (2.9) 11,555 16,447 21,162 26,251 32,003 APAT 3,301 2,786 18.5 3,282 0.6 8,000 11,186 13,873 17,455 20,943 EPS (Rs) 3.72 3.14 18.5 3.70 0.6 9.0 12.6 15.6 19.7 23.6 P/E (x) 93.9 67.1 54.1 43.0 35.9 EV/EBITDA (x) 66.2 46.9 36.4 29.5 24.4 Core RoCE (%) 14.2 17.3 18.1 19.5 19.6 Source: Company, HDFC sec Inst Research

INDUSTRY FMCG

CMP (as on 27 Jul 2017) Rs 289

Target Price Rs 353

Nifty 10,021

Sensex 32,383

KEY STOCK DATA Bloomberg ITC IN

No. of Shares (mn) 12,161

MCap (Rs bn)/(US$ mn) 3,509/54,743

6m avg traded value (Rs mn) 4,144

STOCK PERFORMANCE (%)

52 Week high / low Rs 368 / 222

3M 6M 12M

Absolute (%) 1.0 12.1 16.6

Relative (%) (6.9) (4.0) 1.1

SHAREHOLDING PATTERN (%)

Promoters 67.20

FIs & Local MFs 5.19

FPIs 13.79

Public & Others 13.82 Source : BSE

Naveen Trivedi [email protected] +91-22-6171-7324

INDUSTRY Jewellery - Retail

CMP (as on 9 Nov 2018) Rs 848

Target Price Rs 820

Nifty 8,615

Sensex 27,916



MCap (Rs bn)/(US$ mn) 2,934/43,879




3M 6M 12M

Absolute (%) (1.7) 9.9 3.0

Relative (%) (1.4) 2.8 0.6


Promoters 52.91


FIIs 19.50


Jay Gandhi [email protected] +91-22-6171-7320 Rohit Harlikar [email protected] +91-22-6639-3036

INDUSTRY FMCG

CMP (as on 27 Jul 2017) Rs 289

Target Price Rs 353

Nifty 10,021

Sensex 32,383



MCap (Rs bn)/(US$ mn) 3,509/54,743




3M 6M 12M

Absolute (%) 1.0 12.1 16.6

Relative (%) (6.9) (4.0) 1.1


Promoters 67.20


FPIs 13.79


Naveen Trivedi [email protected] +91-22-6171-7324

INDUSTRY JEWELLERY - RETAIL

CMP (as on 09 Nov 2018) Rs 848

Target Price Rs 820

Nifty 10,585

Sensex 35,159

KEY STOCK DATA Bloomberg TTAN IN

No. of Shares (mn) 888

MCap (Rs bn)/(US$ mn) 752/10,369



52 Week high / low Rs 1,006 / 732

3M 6M 12M

Absolute (%) (7.4) (14.0) 9.0

Relative (%) (0.2) (13.8) 3.1


Promoters 52.91


FPIs 20.53


Jay Gandhi [email protected] +91-22-6171-7320

Rohit Harlikar [email protected] +91-22-6639-3036

mailto:[email protected]

mailto:[email protected]

TITAN : RESULTS REVIEW 2QFY19

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Quarterly Financials (Consolidated) Year to March (Rs mn) 2QFY19 2QFY18 YoY (%) 1QFY19 QoQ (%) 1HFY19 1HFY18 YoY (%) Net Revenue 45,672 35,822 27.5 44,510 2.6 90,183 76,495 17.9 Material Expenses 33,035 26,002 27.0 32,667 1.1 65,701 56,221 16.9 Employee Expenses 2,443 2,094 16.7 2,393 2.1 4,836 4,179 15.7 Other Operating Expenses 5,506 3,507 57.0 4,621 19.1 10,127 8,227 23.1 EBITDA 4,689 4,219 11.2 4,829 (2.9) 9,518 7,868 21.0 Depreciation 428 310 37.9 407 5.0 835 606 37.9 EBIT 4,261 3,908 9.0 4,421 (3.6) 8,683 7,262 19.6 Other Income 279 208 33.9 361 (22.8) 640 491 30.5 Interest Cost 135 145 (7.1) 109 23.9 244 253 (3.6) PBT before exceptional 4,405 3,972 10.9 4,674 (5.7) 9,079 7,500 21.0 Exceptional - (7) - - - - 110 - PBT 4,405 3,965 11.1 4,674 (5.7) 9,079 7,610 19.3 Tax 1,377 1,189 15.9 1,388 (0.7) 2,765 2,227 24.2 Share of Associate Earnings (17) 3 (686.2) (5) 261.7 (22) (5) RPAT 3,011 2,779 8.3 3,282 (8.2) 6,293 5,159 22.0 APAT 3,301 2,786 18.5 3,282 0.6 6,583 5,268 24.9 EPS 3.7 3.1 18.5 3.7 0.6 7.4 5.9 24.9 % Of Net Revenue 2QFY19 2QFY18 YoY (bps) 1QFY19 QoQ (bps) 1HFY19 1HFY18 YoY (bps) Material Cost 72.3 72.6 (26) 73.4 (106) 72.9 73.5 (64) Employee Expenses 5.3 5.8 (50) 5.4 (3) 5.4 5.5 (10) Other Expenses 12.1 9.8 226 10.4 167 11.2 10.8 47 EBITDA 10.3 11.8 (151) 10.8 (58) 10.6 10.3 27 Tax Rate 31.3 29.9 133 29.7 158 30.5 29.3 119 APAT 7.2 7.8 (55) 7.4 (14) 7.3 6.9 41 Source: Company, HDFC sec Inst Research

Net revenues grew by 27.5% as Titan reported strong growth across verticals. Jewellery biz grew by 29% YoY led by extended studded activation scheme and better off-take in GHS and old gold exchange schemes. Grammage grew by 24% YoY. Watches biz grew by 17.5% YoY as volumes took-off courtesy the launch of improved merchandise and low-price point product. EBIT margin contracted by 158 bps as one-offs marred profitability, despite 26 bps gross margin expansion. APAT up by 18.5% YoY led by higher other income and lower finance cost


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Quarterly Segmental (Reported) Year to March (Rs mn) 2QFY19 2QFY18 YoY (%) 1QFY19 QoQ (%) 1HFY19 1HFY18 YoY (%) Segmental Revenues Jewellery 36,451 28,250 29.0 36,426 0.1 72,877 62,502 16.6 Watches 6,788 5,779 17.5 5,963 13.8 12,751 10,965 16.3 Eyewear 1,200 1,006 19.3 1,316 (8.8) 2,516 2,136 17.8 Others 1,284 823 55.9 853 50.6 2,137 1,334 60.1 Corporate (unallocated) 228 171 33.7 315 (27.4) 543 410 32.5 Total 45,951 36,030 27.5 44,872 2.4 90,823 77,347 17.4 Segmental EBIT Jewellery 3,784 3,485 8.6 3,842 (1.5) 7,625 6,717 13.5 Watches 1,115 826 34.9 996 12.0 2,110 1,225 72.2 Eyewear 5 14 (63.0) 17 (71.3) 22 45 (50.4) Others 35 (131) (126.8) (97) (136.3) (62) (228) (73.0) Corporate (unallocated) (415) (80) 416.2 20 (2,185.4) (395) (122) 224.9 Total 4,523 4,113 10.0 4,778 (5.3) 9,301 7,639 21.8 Capital Employed Jewellery 22,770 26,902 (15.4) 16,998 34.0 22,770 26,902 (15.4) Watches 11,976 8,507 40.8 10,398 15.2 11,976 8,507 40.8 Eyewear 2,284 2,119 7.8 2,139 6.8 2,284 2,119 7.8 Others 2,961 2,745 7.9 2,849 3.9 2,961 2,745 7.9 Corporate (unallocated) 13,772 4,012 243.3 22,304 (38.3) 13,772 4,012 243.3 Total Capital Employed 53,764 44,284 21.4 54,688 (1.7) 53,764 44,284 21.4 Source: Company, HDFC sec Inst Research EBIT Margin (Reported) Year to March (Rs mn) 2QFY19 2QFY18 YoY (bps) 1QFY19 QoQ (bps) 1HFY19 1HFY18 YoY (bps) Jewellery 10.4 12.3 (195) 10.5 (17) 10.5 10.7 (28) Watches 16.4 14.3 212 16.7 (28) 16.5 11.2 537 Eyewear 0.4 1.3 (93) 1.3 (91) 0.9 2.1 (123) Others 2.7 (15.9) 1,861 (11.3) 1,404 (2.9) (17.0) 1,417 Corporate (unallocated) (181.8) (47.1) (13,471) 6.3 (18,810) (72.8) (29.7) (4,309) Total 9.8 11.4 (157) 10.6 (80) 10.2 9.9 37 Source: Company, HDFC sec Inst Research

Jewellery biz growth was largely in-line Watches biz reported a strong growth as volumes increased 21% YoY Eyewear registered a double digit growth courtesy the introduction of new products at affordable price points and aggressive marketing campaign Jewellery EBIT margin cracked 195 bps YoY led by lower studded ratio (35% vs 37% in 2QFY18) and higher opex Higher sales of Titan watches had a positive impact on the division’s margins for the quarter


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Revenue and growth Gross margin and EBITDA margin

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Jewellery Biz – Revenue and growth Jewellery – EBIT and EBIT margin

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Revenue grew by 27.5% YoY on a high base of 34% growth in 2QFY18 Jewellery division reported a strong growth despite shift of festive season to 3Q. However, EBIT contracted due to lower studded share and higher opex.

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Jewellery - Revenue (Rs mn) YoY (%) (RHS)

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Watches segment – Revenue and growth Watches – EBIT and EBIT margin

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Eyewear segment – Revenue and growth Eyewear – EBIT and EBIT margin


Continued focus on new designs and branding has started to show good results in Watches segment Strong thrust on modern retail formats and e-commerce led to a strong growth in Eyewear segment. However, enhanced marketing investments kept profitability illusive.

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Jewellery biz - Studded ratio Gold grammage growth, Watches volume growth

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Sales Value Growth (%) Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sept- 18 World of Titan 11 4 12 8 9 7 8 -3 8 8 Tanishq 9 9 20 55 55 22 15 19 3 38 Helios 7 1 16 4 40 9 37 32 25 45 Fastrack 4 -1 3 0 -3 4 10 1 4 10 LFS-Watches 15 11 28 12 20 4 11 14 17 33 Titan Eye + 9 10 10 9 10 10 23 10 19 18 Source: Company, HDFC sec Inst Research Like to Like Growth (%) Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sept-18 World of Titan 6 -2 9 5 6 5 7 -4 2 9 Tanishq 3 4 15 52 51 18 12 17 2 32 Helios 13 1 11 -3 24 -9 4 5 -2 16 Fastrack -1 -5 1 -1 -3 2 6 -6 0 6 LFS-Watches 16 4 13 3 8 1 6 11 12 26 Titan Eye + -2 4 4 1 3 3 14 1 8 8 Source: Company, HDFC sec Inst Research

Studded ratio of 35% for the quarter led by TItan's extended studded activation scheme. Gold volume grew by 24% YoY on a high base of 49% growth in 2QFY18. Company’s efforts in re-crafting Watches segment has started paying off.

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Quarterly snapshot (actual vs HDFC estimates) Rs. Mn 2QFY18 1QFY19 2QFY19 YoY (%) QoQ (%) 2QFY19E Variance (%) Net Revenue 35,822 44,510 45,672 27.5 2.6 43,614 4.7 Total COGS 26,002 32,667 33,035 27.0 1.1 32,078 3.0 Gross Profit 9,820 11,843 12,638 28.7 6.7 11,536 9.6 Gross Profit Margin (%) 27.4 26.6 27.7 26 bps 106 bps 26.5 122 bps Total Operating expenses 5,601 7,015 7,949 41.9 13.3 6,107 30.2 EBITDA 4,219 4,829 4,689 11.2 (2.9) 5,429 (13.6) EBITDA Margin (%) 11.8 10.8 10.3 (151 bps) (58 bps) 12.4 (218 bps) Depreciation 310 407 428 37.9 5.0 420 1.9 EBIT 3,908 4,421 4,261 9.0 (3.6) 5,009 (14.9) EBIT Margin (%) 10.9 9.9 9.3 (158 bps) (60 bps) 11.5 (215 bps) Finance cost 145 109 135 (7.1) 23.9 120 12.4 Other income 208 361 279 33.9 (22.8) 252 10.9 PBT 3,972 4,674 4,405 10.9 (5.7) 5,141 (14.3) Exceptional Item - - - - Tax Expenses 1,189 1,388 1,377 15.9 (0.7) 1,527 (9.8) Effective Tax Rate (%) 29.9 29.7 31.3 133 bps 158 bps 29.7 156 bps Share of associate earnings 3 (5) (17) (686.2) 261.7 (7) 145.5 EO items 7 - - - - PAT 2,779 3,282 3,011 8.3 (8.2) 3,607 (16.5) APAT 2,786 3,282 3,301 18.5 0.6 3,607 (8.5) APAT margin (%) 7.8 7.4 7.2 (55 bps) (14 bps) 8.3 (104 bps) Segment-wise performance (actual vs HDFC estimates)

2QFY18 1QFY19 2QFY19 YoY (%) QoQ (%) 2QFY19E Variance (%) Revenue (Rs. Mn) 36,030 44,872 45,951 27.5 2.4 43,614 5.4 -Jewellery 28,250 36,426 36,451 29.0 0.1 35,081 3.9 -Watches 5,779 5,963 6,788 17.5 13.8 6,289 7.9 -Eyewear 1,006 1,316 1,200 19.3 (8.8) 1,005 19.4 -Others 823 853 1,284 55.9 50.6 1,068 20.3 -Unallocated 171 315 228 33.7 (27.4) 171 33.6 EBIT margin (%) -Jewellery 12.3 10.5 10.4 (195 bps) (17 bps) 13.5 (312 bps) -Watches 14.3 16.7 16.4 212 bps (28 bps) 12.5 392 bps -Eyewear 1.3 1.3 0.4 (93 bps) (91 bps) 1.5 (108 bps) -Others (15.9) (11.3) 2.7 1861 bps 1404 bps (12.0) 1473 bps -Unallocated (47.1) 6.3 (181.8) (13471 bps) (18810 bps) (234.1) 5228 bps Source: Company, HDFC sec Inst Research


Page | 8

Assumptions

FY17 FY18 FY19E FY20E FY21E Jewellery Biz Net Revenue (INR m) 105,964 132,569 160,643 194,690 233,923 YoY (%) 21.5 25.1 21.2 21.2 20.2 -Gold Jewellery 74,599 93,175 112,425 135,669 162,307 YoY (%) 18.8 24.9 20.7 20.7 19.6 -Studded Jewellery 31,365 39,393 48,218 59,021 71,617 YoY (%) 28.4 25.6 22.4 22.4 21.3 EBITDA 10,455 15,130 18,816 23,388 28,803 YoY (%) 24.6 44.7 24.4 24.3 23.2 EBITDA margin (%) 9.9 11.4 11.7 12.0 12.3 Total gold sold (tonnes) 21.0 25.9 30.9 36.2 42.0 YoY (%) 5.1 23.1 19.3 17.2 16.2 Average gold price (INR/gm) 30,862 30,708 31,322 32,261 33,229 YoY (%) 13.0 (0.5) 2.0 3.0 3.0 Studded share (%) 29.6 29.7 30.0 30.3 30.6 Total no. of stores 286 330 373 408 443 Revenue/store (INR m) 413 430 457 499 550 EBITDA/store (INR m) 41 49 54 60 68 Revenue per sq ft (INR) 113,432 128,137 136,125 148,240 164,051 Watches Biz Net revenues 20,611 21,315 25,003 27,798 30,906 YoY (%) 4.4 3.4 17.3 11.2 11.2 EBITDA 2,124 2,613 4,000 4,531 5,069 YoY (%) 8.7 23.0 53.1 13.3 11.9 EBITDA margin (%) 10.3 12.3 16.0 16.3 16.4 Watches sold (m pieces) 14.1 15.2 17.5 19.1 20.8 YoY (%) 1.5 8.0 15.0 9.0 9.0 Eyewear Biz Net revenues 4140 4150 4824 5427 5929 YoY (%) 10.5 0.2 16.3 12.5 9.2 EBITDA 279 159 217 271 326 YoY (%) (43.0) 36.5 25.0 20.2 EBITDA margin (%) 6.7 3.8 4.5 5.0 5.5 Eyewear sold (m) 6.2 6.3 7.9 9.9 11.3 YoY (%) 5 1 25 25 15 Other Biz Net revenues 3,811 4,415 5,474 6,569 7,751 YoY (%) 15.8 24.0 20.0 18.0 Source: Company, HDFC sec Inst Research


Page | 9

Estimate change

(Rs mn) FY19E FY20E FY21E

New Old Change (%) New Old Change (%) New Old Change (%) Revenue 196,639 196,144 0.3 235,179 234,415 0.3 279,205 278,272 0.3 Gross Profit 53,485 53,350 0.3 64,203 63,994 0.3 76,501 76,245 0.3 Gross Profit Margin (%) 27.2 27.2 0 bps 27.3 27.3 0 bps 27.4 27.4 (0 bps) EBITDA 21,162 21,109 0.3 26,251 26,165 0.3 32,003 31,896 0.3 EBITDA margin (%) 10.8 10.8 0 bps 11.2 11.2 0 bps 11.5 11.5 (0 bps) APAT 13,873 13,841 0.2 17,455 17,404 0.3 20,943 20,881 0.3 APAT margin (%) 7.1 7.1 (0 bps) 7.4 7.4 (0 bps) 7.5 7.5 (0 bps) EPS (Rs) 15.6 15.6 0.2 19.7 19.6 0.3 23.6 23.5 0.3 Peer Set Comparison

MCap

(Rs bn) CMP (Rs) Reco TP

(Rs) EPS (Rs) P/E (x) EV/EBITDA (x) Core ROCE (%)

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E Titan 751.1 848 NEU 820 15.6 19.7 23.6 54.1 43.0 35.9 36.4 29.5 24.4 18.1 19.5 19.6 PCJ 37.1 94 NR - 20.4 23.9 28.9 4.5 3.8 3.2 6.2 5.4 4.6 11.2 11.6 12.2 TJL 5.3 384 BUY 625 20.5 27.7 34.7 18.8 13.9 11.1 11.2 9.6 8.4 8.5 10.2 10.9 TBZ 4.4 66 NR - 3.9 4.5 5.7 17.1 14.8 11.7 12.9 12.0 11.1 4.4 4.7 5.1 Source: HDFC sec Inst Research Titan: Proforma vs underlying RoCE

Titan: Proforma vs underlying RoIC


21.5 25.1 25.9 27.1 27.3

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Industry Charts Domestic Jewellery to grow at 6% CAGR Indian Jewellery: Growth contribution over FY18-23E

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research SUPERPACK’S share to touch 42% by FY23E Gold price near its all time high


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5.8 4.

4

4.4

-15.0

-10.0

-5.0

0.0

5.0

10.0

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY14

E

FY15

E

FY16

E

FY17

E

FY18

E

FY19

E

FY20

E

FY21

E

FY22

E

FY23

E

Domestic Jewellery (Rs bn)

Domestic Jewellery YoY (%) - RHS

2,836

3,728

594

298

FY18 Domestic Jewellery

Gold Jewellery Studded Jewellery

FY23 Domestic Jewellery

Rs bn

23.2 24.3 29.2 30.9 33.0 35.6 38.5 41.7

76.8 75.7 70.8 69.1 67.0 64.4 61.5 58.3

0.0

20.0

40.0

60.0

80.0

100.0

FY16

E

FY17

E

FY18

E

FY19

E

FY20

E

FY21

E

FY22

E

FY23

E

SUPERPACK Unorganized%

27,500

28,500

29,500

30,500

31,500

Mar

-16

Jun-

16

Sep-

16

Dec-

16

Mar

-17

Jun-

17

Sep-

17

Dec-

17

Mar

-18

Jun-

18

Sep-

18

Gold Price (INR/10 g) +1 Std Dev-1 Std Dev Avg


Page | 11

Domestic Jewellery consumption pattern SUPERPACK’s est. wedding share

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Player-wise estimated market share (%) Tanishq to nearly double its share by FY23E


Wedding59

Casual27

Special Occasion

14

Tanishq2.0 PC Jeweller

3.6

TBZ0.7

Thangamayil0.3

GRT3.3

Joyalukkas1.9 Kalyan

2.8

Malabar3.3

PN Gadgil & Sons0.5

Others7.8

4.5 4.2 4.1

2.6 2.4 2.1

1.1 0.8 0.6 0.4 0.5 0.5

0.0

1.0

2.0

3.0

4.0

5.0

GRT

Tani

shq

Mal

abar

Gol

d

Kaly

an

Joya

lukk

as

PCJ (

Dom

. Biz

)

Jos A

lukk

as

Khaz

ana

TBZ

Than

gam

ayil

PN G

adgi

l

Oth

er o

rgan

ized

…

%

4.28.1

12.5

2.22.0

2.01.2 0.8 0.4 0.4 0.4 0.1

1.0

FY18

E Ta

nish

q's s

hare

Uno

rgan

ized

…

Mal

abar

Gol

d

GRT

PCJ (

Dom

Biz

)

Joya

lukk

as

Kaly

an

Than

gam

ayil

Jos A

lukk

as

PN G

adgi

l

TBZ

Oth

er o

rgan

ized

…

FY23

E Ta

nish

q's s

hare

%


Page | 12

Income Statement (Rs mn) FY17 FY18 FY19E FY20E FY21E Net Revenues 132,608 161,198 196,639 235,179 279,205 Growth (%) 17.6 21.6 22.0 19.6 18.7 COGS 95,530 117,425 143,154 170,976 202,704 Employee Expense 7,875 8,851 10,600 12,442 14,213 A&P Expense 4,812 4,940 5,899 7,055 8,376 S&D Expense 3,898 4,757 5,704 6,587 7,820 Rent Expense 1,954 2,170 2,450 2,695 3,200 Other Expenses 6,985 6,609 7,669 9,172 10,889 EBITDA 11,555 16,447 21,162 26,251 32,003 EBITDA Growth (%) 23.6 42.3 28.7 24.0 21.9 EBITDA Margin (%) 8.7 10.2 10.8 11.2 11.5 Depreciation 1,105 1,314 1,699 2,175 2,707 EBIT 10,450 15,133 19,463 24,076 29,295 Other Income (Including EO Items) (322) 722 999 1,174 1,330

Interest 377 529 605 627 666 PBT 9,750 15,326 19,858 24,623 29,959 Total Tax 2,760 4,279 5,957 7,141 8,988 RPAT before associate earnings 6,991 11,047 13,900 17,482 20,971 Share of Associate earnings (18) (28) (28) (28) (28) RPAT 6,973 11,019 13,873 17,455 20,943 Exceptional Gain/(loss) (1,027) (167) - - - Adjusted PAT 8,000 11,186 13,873 17,455 20,943 APAT Growth (%) 18.6 39.8 24.0 25.8 20.0 Adjusted EPS (Rs) 9.0 12.6 15.6 19.7 23.6 EPS Growth (%) 18.6 39.8 24.0 25.8 20.0

Source: Company, HDFC sec Inst Research

Balance Sheet (Rs mn) FY17 FY18 FY19E FY20E FY21E SOURCES OF FUNDS Share Capital - Equity 888 888 888 888 888 Reserves 41,436 50,011 59,868 71,968 85,416 Total Shareholders Funds 42,324 50,899 60,756 72,856 86,304 Minority Interest 264 (18) (18) (18) (18) Long Term Debt - - - - - Short Term Debt 26,066 27,295 32,073 38,382 45,888 Total Debt 26,066 27,295 32,073 38,382 45,888 Net Deferred Taxes (861) (1,351) (1,351) (1,351) (1,351) Other Non-current Liabilities & Provns - 13 13 13 13

TOTAL SOURCES OF FUNDS 67,792 76,838 91,472 109,882 130,835 APPLICATION OF FUNDS Net Block 10,745 13,512 15,932 18,291 20,728 CWIP 1,432 430 430 430 430 Goodwill on Consolidation 1,230 1,230 1,230 1,230 1,230 Other Non-current Assets 949 1,083 1,083 1,083 1,083 Total Non-current Assets 14,356 16,255 18,676 21,035 23,472 Investments 370 344 344 344 344 Inventories 49,257 59,248 67,258 81,729 97,794 Debtors 2,076 2,957 4,147 5,604 7,418 Other Current Assets 5,428 8,860 9,171 10,773 12,790 Cash & Equivalents 11,727 6,195 11,975 14,112 17,172 Total Current Assets 68,488 77,261 92,551 112,218 135,174 Creditors 7,828 8,777 10,707 12,806 15,203 Other Current Liabilities & Provns 7,595 8,245 9,391 10,910 12,952 Total Current Liabilities 15,423 17,022 20,098 23,715 28,155 Net Current Assets 53,066 60,239 72,453 88,503 107,020 TOTAL APPLICATION OF FUNDS 67,792 76,838 91,472 109,882 130,835



Page | 13

Cash Flow Statement (Rs mn) FY17 FY18 FY19E FY20E FY21E Reported PBT 9,733 15,298 19,858 24,623 29,959 Non-operating & EO Items (483) (723) (1,027) (1,202) (1,357) Interest Expenses 377 529 605 627 666 Depreciation 1,105 1,314 1,699 2,175 2,707 Working Capital Change 9,158 (12,365) (6,435) (13,914) (15,456) Tax Paid (2,768) (4,561) (5,957) (7,141) (8,988) OPERATING CASH FLOW ( a ) 17,123 (507) 8,743 5,169 7,531 Capex (6,359) (2,993) (4,119) (4,534) (5,144) Free Cash Flow (FCF) 10,764 (3,500) 4,623 635 2,387 Investments (3,894) 3,316 - - - Non-operating Income 409 636 999 1,174 1,330 INVESTING CASH FLOW ( b ) (9,844) 960 (3,120) (3,360) (3,814) Debt Issuance/(Repaid) (1,243) 790 4,778 6,309 7,506 Interest Expenses (377) (541) (605) (627) (666) FCFE 9,144 (3,251) 8,796 6,317 9,227 Share Capital Issuance - - - - - Dividend (36) (2,774) (4,016) (5,354) (7,496) Others - - (0) (0) (0) FINANCING CASH FLOW ( c ) (1,656) (2,524) 157 328 (656) NET CASH FLOW (a+b+c) 5,623 (2,072) 5,780 2,136 3,060 EO Items, Others 1,322 1,471 1,459 1,459 1,459 Closing Cash & Equivalents 7,789 6,179 11,959 14,095 17,156


Key Ratios FY17 FY18 FY19E FY20E FY21E PROFITABILITY (%) GPM 28.0 27.2 27.2 27.3 27.4 EBITDA Margin 8.7 10.2 10.8 11.2 11.5 EBIT Margin 7.9 9.4 9.9 10.2 10.5 APAT Margin 6.0 6.9 7.1 7.4 7.5 RoE 20.7 24.0 24.8 26.1 26.3 RoIC (or Core RoCE) 14.2 17.3 18.1 19.5 19.6 RoCE 13.5 16.0 17.0 17.8 17.8 EFFICIENCY Tax Rate (%) 25.6 27.6 30.0 29.0 30.0 Fixed Asset Turnover (x) 13.5 12.0 11.2 10.7 10.3 Inventory (days) 129 123 125 127 128 Debtors (days) 6 6 8 9 10 Other Current Assets (days) 15 20 17 17 17 Payables (days) 22 20 20 20 20 Other Current Liab & Provns (days) 21 19 17 17 17 Cash Conversion Cycle (days) 113 110 112 115 117 Net Debt/Equity (x) 0.3 0.4 0.3 0.3 0.3 Interest Coverage (x) 27.7 28.6 32.2 38.4 44.0 PER SHARE DATA (Rs) EPS 9.0 12.6 15.6 19.7 23.6 CEPS 10.3 14.1 17.5 22.1 26.6 Dividend 2.6 3.8 5.0 7.0 9.0 Book Value 47.7 57.3 68.4 82.1 97.2 VALUATION P/E (x) 93.9 67.1 54.1 43.0 35.9 P/BV (x) 17.7 14.8 12.4 10.3 8.7 EV/EBITDA (x) 66.2 46.9 36.4 29.5 24.4 EV/Revenues (x) 5.8 4.8 3.9 3.3 2.8 OCF/EV (%) 2.2 (0.1) 1.1 0.7 1.0 FCF/EV (%) 1.4 (0.5) 0.6 0.1 0.3 FCFE/Mkt Cap (%) 1.2 (0.4) 1.2 0.8 1.2 Dividend Yield (%) 0.3 0.4 0.6 0.8 1.1



Page | 14

RECOMMENDATION HISTORY

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 21-Jun-18 896 NEU 820 9-Jul-18 831 NEU 820

4-Aug-18 918 NEU 820 10-Oct-18 750 NEU 820 10-Nov-18 848 NEU 820

600

700

800

900

1,000

Nov-

17

Dec-

17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Jul-1

8

Aug-

18

Sep-

18

Oct

-18

Nov-

18

Titan TP


Page | 15

Disclosure: We, Jay Gandhi, MBA & Rohit Harlikar, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. 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In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. 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HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.


Page | 16

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 Board : +91-22-6171 7330www.hdfcsec.com

neutral on the front foot; one-offs mar profitability - 2qfy19 - hdfc sec... · non-jewellery...

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