Titan Company - Q2FY21 First Cut - ICICI Securities

(CMP: Rs. 1217; MCap: Rs. 108123 crore)

Titan reported Q2FY21 results, wherein revenues were in-line with estimates (as guided by the management), however profitability was below our estimates owing to gross margin deterioration due to unfavourable product mix. Overall revenues (including bullion sales of Rs. 391 crore) declined by 2% YoY to Rs. 4553.0 crore. EBITDA margins declined by 430 bps YoY to 6.9% (I-direct estimate: 9.0%). EBITDA came in at Rs. 313 crore. Provision of Rs. 34 crore towards overdue margin money from a broker also impacted the profitability. PAT for the quarter declined by 45% YoY to Rs. 173.0 crore (I-direct estimate: Rs. 219 crore). The management indicated on ground the demand scenario has been improving and company has witnessed high single digit growth (like for like) during the first ten days of festive season. Company continues to gain market share as unorganised regional players are currently hovering at 55-70% recovery rate.

The Group has recognized a loss of Rs. 485 crores during the quarter in other expense due to ineffective hedges. Had the hedge been "effective", revenue and Other expenses would have been lower by the same amount without any impact on EBIT. The company expects ineffective hedges to reduce substantially as predictability of sales improves.

Q2FY21 Earning Summary

- As guided by the management in its pre-quarterly update, the jewellery division witnessed strong revival with recovery rate of 98% in Q2FY21 (on a low base of Q2FY20). Revenue for the jewellery division grew by 7.2% YoY to Rs. 3983 crore (including bullion sale of Rs. 391 crore). Excluding the bullion sale, revenue for the division declined by 2% YoY. The growth was mainly driven by demand for gold coins and plain gold jewellery owing to surge in gold prices. Demand for studded jewellery has increased on QoQ basis to 26% (compared to 18% in previous quarter), however still remains below on YoY basis (Q2FY20: 38%). Watches division recovery is sluggish with sales reaching 55% of pre-Covid levels in Q2FY21 (September: 70%). Revenue for the division de-grew by 44% YoY to Rs. 401 crore. Overall revenues declined by 2% YoY to Rs. 4553.0 crore

- Gross margins were impacted substantially owing to lower share of studded ratio and increase in sales of gold coins (14% vs. 3% YoY). Adjusted gross margins declined by ~670 bps YoY. Company has embarked upon cost saving initiatives with employee and other expenses (excluding ineffective hedges) declining by 19% and 25%, respectively. Advertisement spends came down sharply by 57% YoY to Rs. 61.0 crore. Company reported EBITDA of Rs. 313 crore (down 40% YoY). PAT came in at Rs. 173.0 crore (down 45% YoY).

Overall sales recovery of 89% in Q2FY21 has been encouraging given the challenging scenario. With the upcoming festive season, management expects momentum to sustain with full normalcy expected by Q4FY21. Company expects pick-up in pace in the share of studded jewellery in Q3FY21 which would aid gross margins going forward. Working capital management has been the priority of the company. As on 30th September company is net cash surplus vs net debt as on 30th March 2020.

We will soon be coming out with a detailed report.

Shares of Titan Company Limited was last trading in BSE at Rs.1217.9 as compared to the previous close of Rs. 1232.65. The total number of shares traded during the day was 309952 in over 9932 trades.

The stock hit an intraday high of Rs. 1242 and intraday low of 1186. The net turnover during the day was Rs. 378217786.

Source : Equity Bulls

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