Titan Industries + Gitanjali Gems

Titan reported a 53% increase in sales and 88% net profit growth. Moreover, sales growth of both the watches and jewellery divisions was satisfactory; both posted handsome margin expansion. EBIT margins expanded 270bp on mix gains, ahead of expectations, as premium-end Titan and Fastrack continued to grow significantly faster than mass-end Sonata. Titan Eye+ store roll out is on track with 34 stores at the end of the quarter; target being 60 stores by FY09 end.

Other growth drivers for Titan are new designs and innovation across products should take wallet share; increase in charges for making jewellery, and increased preference of consumers for branded jewelery.

According to research estimates, Titan is expected to report an EPS of Rs 43-45 for FY09 and Rs 51-53 for FY10.

Gitanjali Gems:
Gitanjali Gems reported sales growth of 14% y-o-y, with jewellery segment growing sales 37%. EBIT margin expanded 69 bps, with EBIT growing 30% y-o-y, driven by an improved mix between diamonds and jewellery. A slowdown is not apparent in the results, we believe it is likely in the future and therefore build in a slower growth rate for jewellery business revenues at 25% for FY09e and 13% for FY10e.

Some of the points in favor of Gitanjali Gems are, low level of leverage – net
debt to equity 26% FY 2008, Indian consumers shift towards branded jewellery, outsourced production in India for its American chains – Samuels and Rogers.

Gitanjali Gems is expected to report an EPS of Rs 18.83 and Rs 21.85 for FY 09 and FY 10 respectively. The stock is trading at a P/E of less than 5, very cheap compared to Titan Industries.

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