The fifth largest watch manufacturer in the world, Titan Company in its purview for quarter (Q3) Financial Year (FY)2019 has highlighted a good growth across all its business segments. An aggressive retail network roll-out has helped the company cross the two million sq.ft mark during Q3. Titan’s retail network has around 1,600 exclusive stores and it has added another 40 stores in the first half (H1)FY2019 on a net basis. The management in its Q3 update has cited healthy growth due to robust customer demand in the festive season. An analyst tracking the company at ICICI Direct said, “We anticipate H2FY2019 revenue growth to be significantly better (as compared to 17 per cent growth in H1FY2019) as Q3FY2019 is predominantly expected to be driven by strong festive demand while Q4FY2019 is expected to be supported by higher number of wedding dates.”
Financial Scorecard
Titan’s net sales and profit after tax (PAT) clocked a compounded annual growth (CAGR) of 8.1 per cent and 8.5 per cent over FY2014-18. For Q2, the company’s standalone revenue grew by 26 per cent and earnings before interest and taxes (EBIT) saw growth of four per cent. Meanwhile, the company’s jewellery segment saw over 29 per cent growth. However, the profit was muted on account of higher advertising spends. The management expects revenue growth in its jewellery segment to be around 22 per cent for FY2019.
The company’s eyewear business has grown by 19 per cent in Q2 with introduction of more lower-price point products. Analysts at Prabhudas Lilladher observed, “Eyewear business has seen strong traction and is on track to achieve 3.7 million customers in FY2019 and five million in FY2020, benefits of backward integration and scale should enable profitable growth by FY2020.” Further, with the launch of many newer products across its brands-Titan, Fastrack and Sonata, the watch division posted a 17 per cent growth. However, the management warns investors about higher spends on advertising, which will hold back the EBIT margins in watches segment for the Q3.
Motilal Oswal in its research report pointed out that currently, Titan has the highest gross margin in watches as compared to its other brands. “High asset turnover, coupled with positive operating leverage are expected to translate into 34 per cent return on capital employed by FY2021E from current 29 per cent. We expect revenues and earnings to grow at a CAGR of 20 and 26 per cent respectively, in FY2018-2021E,” concluded the analyst at ICICI Direct.
Lead brokerages like Motilal Oswal, ICICI direct and Prabhudas Lilladher remain positive on the growth prospects and has given a green signal on the buy call on the company.
A Diverse Portfolio Is Driving Growth
Its US business marked a 33 per cent growth
Aurobindo Pharma’s (ARBP) performance for its second quarter (Q2)FY19 was in line with the estimates made by most of the brokerage analysts. In terms of consolidated revenues, it continues to be among the top two pharmaceutical companies in India, while 90 per cent of its revenues are derived from international operations. Analysts said that the company will remain bullish with its strong launch momentum in the US. Also, its European business continues to expand its footprint on the back of cost competitiveness. It has also received final approval of 13 abbreviated new drug application.
Financial Performance
The company’s net sales and profit after tax (PAT) clocked compounded annual growth (CAGR) of 15.2 per cent and 15.7 per cent respectively. ARBP’s revenue from operations saw a 7.1 per cent growth, while net profit declined by 22 per cent year-on-year (YoY) due to a one-off acquisition cost of Rs268 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) margin for the second quarter stood at Rs1,026 crore which was down by eight per cent YoY. Despite higher raw material prices, the increasing complex generics launches will keep the EBITDA margin in the range of 21-22 per cent opined an analyst from Prabhudads Lilladher. The company’s formulation sales witnessed a growth of 7.4 per cent YoY and accounting for 82.8 per cent of total revenues. Whereas its active pharmaceuticals ingredients (API) business posted a growth of 5.8 per cent to Rs816.6 crore and constituting 17.2 per cent of the total revenue during Q2.
The growth in the API business was driven by the non-betalactum segment. The company’s acquisition of dermatology and oral solid business from Sandoz is expected to add 300 new products boosting ARBP manufacturing capabilities. An analyst at HDFC Securities said, “Post Sandoz integration, we expect earnings to jump by Rs14-15/sh over FY2020-2021E and ARBP will become the second largest generic company in the US. Overall, we estimate seven to eight per cent revenue CAGR (ex-Sandoz) over FY2018-2021E.”
This bodes well for the investors, especially when the company’s major focus remains on capturing new business opportunities (NBOs) post withdrawal of products by large peers. “Its NBO order book increased to $100 million of which approximately $20-22 million was realised in Q2FY2019. ARBP’s free cash flow helped to reduce net debt by $20 million to 551 million in Q2FY2019. It guided net debt of $450 million in FY2019E and $300-350 million in FY2020E, assuming no additional acquisition costs,” explained an analyst from Prabhudas Lilladher.
ICICI Direct in its Q3FY2019 estimates pharma earnings report stated in the pharma space, results are expected to be good on the back of acquisitions and recovery of the US-based business.
