We maintain our ?neutral? rating on Titan Industries and assign a target price of R250. We value Titan at 22x FY15f EPS of R11.3, a 15% discount to other consumer companies. We believe this is justified given Titan?s lower earnings growth profile over the next couple of years.
Titan?s Q4FY13 results were marginally lower on the revenue line, but net income was ahead of our and consensus expectations. This was helped by lower(advertising and promotion spends during the quarter. Jewellery segment margins surprised on the upside, but watches segment was a significant disappointment both on revenue growth and margins.
Fourth quarter revenue grew 14.5% to R2,610 crore against our forecast of R2,660 crore and consensus forecast of R2,690 crore. Ebitda grew 27.3% to R296 crore with margins coming in at 10.2% vs our estimate of 9.5%. This was mainly as a result of margins in the jewellery segment coming in 11.9%, up 180 bps y-o-y.
Watches segment, though, was disappointing with sales growth of 1.5% y-o-y. Margins fell 200 bps y-o-y. PAT came in at R185 crore versus our forecast of R171 crore.
During the quarter, performance in the jewellery division was stable with 8% like-for-like growth in Tanishq. This was in line with our expectation. Share of studded jewellery was 32% for the quarter with customer growth at 12%. Since the price of gold dropped in early April, demand has been strong in the jewellery division, but it remains to be seen how the demand holds up for the rest of the year. Volume growth may well be strong in Q1FY14 if current trends sustain.
The company has made no changes to the way it calculates making charges, despite the drop in gold prices. The company expects to add 100,00 sq ft of store space in the jewellery business in FY14.
Watch segment performance during the quarter was held back by inventory issues, which should clear up going forward. Inventory level was high, which meant shipments during the quarter were subdued. A&P expenses were lower during the quarter at 2.6% of sales, which is the lowest in many quarters. The management said it has rationalised the spends on A&P given the economic environment and is also looking at more targeted use of A&P spends.