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Leader of the pack
Titan is the leader in the Indian watch and jewellery markets with an
impressive track record and significant growth opportunities. Whilst
there have been concerns that Titan’s attractiveness may wane as other
jewellery retailers list, we see this as overdone given that its jewellery
business has superior margins and return ratios and similar profit growth
compared to the much smaller traditional retailers. Titan also benefits
from a national brand, which Joyallukas and TBZ lack. Relative to listed
retail peers, Titan has a significantly stronger track record of profit
growth and return ratios. Given a modest premium to peers and a
valuation in line with five year average, we reiterate OUTPERFORM.
A long way ahead of traditional jewellers
Titan jewellery revenue base is nearly double that of Joyallukas and nearly 4x
in size compared to Tribhovandas Bhimji Zaveri (TBZ) – two of the largest
traditional jewellers in India, both of whom are planning IPOs. Besides sheer
scale, Titan enjoys superior margins and return ratios. Titan also has a
significantly larger store base (over 7x Joyallukas and 10x that of TBZ), and a
national presence which neither of the traditional jewellers can match. Whilst
Titan lags on revenue/sq ft and local market dominance, its reliance on
particular stores is significantly lower - reducing the risk profile. Despite the
larger base, Titan’s Ebit growth has kept pace with the smaller peers. Overall,
Titan has a stronger jewellery business. This is accompanied by a nationally
recognised brand and a track record of successfully managing a large retail
network, which only enhances its attractiveness.
Track record and efficiency outstrip conventional retailers
Even compared to mainstream retailers like Shoppers Stop and Pantaloon,
Titan has a stronger track record on return ratios and has delivered better
profit growth over FY07-10 (38% vs 24% for peers). This outperformance is
expected to continue and we expect Titan to have superior FY10-13 profit
growth as well (40% CAGR against 39% for Shoppers Stop and 18% for
Pantaloon). The fact that Titan has delivered this performance against a
backdrop of consistent cash generation makes it all the more creditable.
Valuation reasonable
Titan’s strong brands in jewellery and watches coupled with a strong
management team and significant growth opportunities underpin a
remarkably strong company. Despite its track record, Titan enjoys only a 16%
premium to Shoppers Stop and Pantaloon on FY12 PE. The stock is trading at
its five year average PE despite the earlier downward trajectory in margins
reversing, return ratios having improved and leverage reduced significantly.
Titan remains our preferred pick in retail. Reiterate our OUTPERFORM stance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Leader of the pack
Titan is the leader in the Indian watch and jewellery markets with an
impressive track record and significant growth opportunities. Whilst
there have been concerns that Titan’s attractiveness may wane as other
jewellery retailers list, we see this as overdone given that its jewellery
business has superior margins and return ratios and similar profit growth
compared to the much smaller traditional retailers. Titan also benefits
from a national brand, which Joyallukas and TBZ lack. Relative to listed
retail peers, Titan has a significantly stronger track record of profit
growth and return ratios. Given a modest premium to peers and a
valuation in line with five year average, we reiterate OUTPERFORM.
A long way ahead of traditional jewellers
Titan jewellery revenue base is nearly double that of Joyallukas and nearly 4x
in size compared to Tribhovandas Bhimji Zaveri (TBZ) – two of the largest
traditional jewellers in India, both of whom are planning IPOs. Besides sheer
scale, Titan enjoys superior margins and return ratios. Titan also has a
significantly larger store base (over 7x Joyallukas and 10x that of TBZ), and a
national presence which neither of the traditional jewellers can match. Whilst
Titan lags on revenue/sq ft and local market dominance, its reliance on
particular stores is significantly lower - reducing the risk profile. Despite the
larger base, Titan’s Ebit growth has kept pace with the smaller peers. Overall,
Titan has a stronger jewellery business. This is accompanied by a nationally
recognised brand and a track record of successfully managing a large retail
network, which only enhances its attractiveness.
Track record and efficiency outstrip conventional retailers
Even compared to mainstream retailers like Shoppers Stop and Pantaloon,
Titan has a stronger track record on return ratios and has delivered better
profit growth over FY07-10 (38% vs 24% for peers). This outperformance is
expected to continue and we expect Titan to have superior FY10-13 profit
growth as well (40% CAGR against 39% for Shoppers Stop and 18% for
Pantaloon). The fact that Titan has delivered this performance against a
backdrop of consistent cash generation makes it all the more creditable.
Valuation reasonable
Titan’s strong brands in jewellery and watches coupled with a strong
management team and significant growth opportunities underpin a
remarkably strong company. Despite its track record, Titan enjoys only a 16%
premium to Shoppers Stop and Pantaloon on FY12 PE. The stock is trading at
its five year average PE despite the earlier downward trajectory in margins
reversing, return ratios having improved and leverage reduced significantly.
Titan remains our preferred pick in retail. Reiterate our OUTPERFORM stance.
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