Titan Industries’ (Titan) has registered a sharp revenue growth of 49% to Rs6.6bn in Q1FY08, driven by 64% growth in jewelry business and 15% in the watches business. Improving scale of operations and lower advertising spends have led to margin expansion by 190bp at 5.6%. PAT has surged by 209% at Rs126m, albeit effective tax rate of 50%.Titan is sweetly poised for sustained growth momentum on the back of multiple growth propellers – product innovation (in watches & jewelry), rapid scale up of retail operations and addition of new avenues like eye-care and precision engineering. We expect the watches business to grow at 15%, as Titan capitalizes upon its strong brand equity and consumers uptrade. We expect the jewelry business to grow at ~25% as consumers move towards organized shopping and Titan scales up its retail operations (showrooms, 98 Tanishq and 25 Gold Plus stores by end of FY0 . Titan has also forayed into prescription eyewear market (Rs25-30bn business) through its brand – Titan Eye+ and has plans to reach 15 stores by end of FY08. Titan’s precision engineering business is expected to grow at ~80% CAGR over the next three years, as Titan taps the global medical, auto and aero space. Titan’s growth plans and our interaction with the management comforts us over the strong earnings momentum.Trading at 24x FY09E, we maintain our Outperformer recommendation on Titan.
HIGHLIGHTS OF Q1FY08 RESULTS AND OUR INTERACTION WITH THE MANAGEMENT
Sustained growth momentum
Titan’s revenues have surged by 49% to Rs6.6bn in Q1FY08, with every business segment sustaining high growth momentum. While the watches portfolio has grown at 15%, the key growth contributor has been the 64% growth in jewelry operations. The growth in the jewelry business can be attributed partly to the higher gold prices. Titan has also been witnessing 20%+ same store growth. Titan’s new growth avenues like precision engineering and eye-wear have grown by 71% at Rs232m.
Improving scale, lower advertising spends and low base drive margin improvement

EBITDA margins have improved by 210bp at 5.6%. As Titan continues to roll out new retail outlets under the watches business, margins in the watches business have dipped by 230bp. However, margins in the jewelry business have improved by 330bp. The margin improvement can be attributed to improving scale of operations (other expenditure down from 11.5% of revenues in Q1FY07 to 8.1% in Q1FY0 , lower ASP spends (5.2% as against 9.1%) and partly on account of low base effect. However, owing to faster growth in low margin jewelry business, gross contribution has dropped and material cost to sales has moved up from 67% in Q1FY07 to 67% in Q1FY08. We expect margins to improve in the long run on the back of product mix improvement within segments (Titan over Sonata, studded jewelry over gold jewelry), and the increased contribution of high margin businesses like precision engineering and eyewear. However, the investments that will be required to fund new ventures will restrict margin expansion in the short-term. PAT has grown by 209% at Rs126m, albeit effective tax rate for the quarter at 50%.
EBITDA margins have improved by 210bp at 5.6%. As Titan continues to roll out new retail outlets under the watches business, margins in the watches business have dipped by 230bp. However, margins in the jewelry business have improved by 330bp. The margin improvement can be attributed to improving scale of operations (other expenditure down from 11.5% of revenues in Q1FY07 to 8.1% in Q1FY0 , lower ASP spends (5.2% as against 9.1%) and partly on account of low base effect. However, owing to faster growth in low margin jewelry business, gross contribution has dropped and material cost to sales has moved up from 67% in Q1FY07 to 67% in Q1FY08. We expect margins to improve in the long run on the back of product mix improvement within segments (Titan over Sonata, studded jewelry over gold jewelry), and the increased contribution of high margin businesses like precision engineering and eyewear.However, the investments that will be required to fund new ventures will restrict margin expansion in the short-term. PAT has grown by 209% at Rs126m, albeit effective tax rate for the quarter at 50%.