Titan Industries Ltd has started an aggressive expansion plan, opening stores in more markets. That, plus some price increases in the March quarter, helped the company tide over the volume slowdown in some categories. Net profit climbed 72% to Rs 144.28 crore in the March quarter, largely owing to the watches segment.
The timeware segment was the top performer, with 14% volume growth in the March quarter over a year ago, beating the 11% growth in the December quarter. Titan posted 25% revenue growth in this segment.
Not only that, the segment also posted an increase in Ebit (earnings before interest and tax) margins during the quarter. This metric grew to 12.9%, an improvement of 9.3 percentage points over a year ago. However, note that this increase was largely owing to a one-time provision on employee benefits that Titan had made last year. Secondly, as the company imports most of its raw materials for this segment, Ebit margins will be under pressure in the next couple of quarters because of the depreciating rupee.
Unfortunately, that comes at a time when the jewellery business is not performing that well. A strike among jewellers, a tax hike on gold imports and generally higher gold prices saw Titan’s gold volumes fall 7% from a year ago. That, while not entirely unexpected, follows a 5% year-on-year drop in volumes in the December quarter.
To be sure, the increase in gold prices also helped Titan post 32% revenue growth in this segment. However, Ebit margins in the category fell 10 basis points to 10.13%.
Other divisions, which include eyewear and precision engineering, surprised with 17% revenue growth. However, this segment posted a loss at the Ebit level on account of a higher number of launches in the eyewear business that have not turned profitable.
The stock has climbed 36% in the year till date. However, analysts remain cautious as it is trading at a high 28 times estimated earnings for fiscal 2013 (FY13). The stellar revenue growth is led by aggressive store roll-outs, which pose the risk of lower margins in the short run.
A weakening rupee could continue to weigh on the watches segment and the earnings estimate for FY13, as pointed out by brokerage firm Emkay Global Financial Services Ltd in a research note.
Also See | Quarterly performance (PDF)