Titan’s Q4 FY15 revenue came below expectations, while PAT was in line. The miss in sales was largely on account of postponement of jewellery purchase in anticipation of customs duty cut on gold in January and February; sales in April witnessed pick up as well. Key positives: (i) studded jewellery growth at 15% y-o-y excluding impact of absence of Golden Harvest Scheme (GHS); (ii) 2% y-o-y watches sales growth on a high base; and (iii) 207bps y-o-y EBIT margin expansion in jewellery to 12.7% led by R5,300 crore hedging benefits. Key negatives: (i) 15% y-o-y decline in jewellery sales (17% YoY growth ex-GHS absence impact); and (ii) 243bps y-o-y dip in watches EBIT margin due to negative operating leverage. The stock may come under pressure in near term due to miss on jewellery, but long-term outlook remains strong. We are enthused by push towards jewellery volume growth (30 store addition in FY16, 90,000sq ft, reduced making charges and aggressive ad campaign communicating value proposition).
The management said in the conference call that the company has reduced making charges for plain gold jewellery to make Tanishq accessible to a larger customer base, which will lead to hockey stick growth in the longer term. Revised GHS scheme has received good consumer response.
Long-term growth potential remains strong with full benefit of gold lease and lower making charges coming into play. The stock is currently trading at 32.7x FY16e and 27.6x FY17e. We maintain buy on the stock with target price of R471.