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Titan Industries
Discretionary consumption growing strong
despite price headwinds
„ Price inflation; volume growth key metric
Over the last 2-3 months, while gold prices are up ~8%, the prices of diamonds are
up ~60-70%. The ~30% of jewellery sales that is diamond jewellery has seen the
highest price inflation. The risk is on slowing diamond jewellery sales. Titan
passes on all diamond cost increases; Q1FY12E should see a margin expansion due
to inventory gain from diamond stocks.
„ Margin and growth targets; in line with our estimates
Over the next 2-3 years, Titan would like to expand EBIT margins from the current
8.5% to 10% levels. We have built in 9.3% EBIT margins for FY13-14E. We have
built in 16% and 18% volume growth in the watch and jewellery segments in our
estimates (FY12) which are in line with the company's benchmarked expectations.
„ Expansion, growth strategies
Apart from the retail chain expansion across store openings in watches, jewellery
and optics, Titan is opening Helios stores - retailing mid-luxury watches and
Tanishq landmark stares to drive market leadership in the large cities in India.
Titan may also look for an acquisition of a watch brand to augment the watch
business as a proportion of total sales.
„ Valuation: Maintain Buy with price target of Rs5,000
Our price target is derived using UBS’s VCAM tool, assuming WACC of 11.2%,
intermediate growth rate of 17.0%.
Q Titan Industries
Titan Industries is a diversified specialty retailer in India with exposure to the
watch, jewellery and eyewear segments. It began operations as a watch company,
diversifying into the jewellery business in 1995, and the eyewear business in
2007. Watches contributed 22%, jewellery 75%, and eyewear 2% of its revenue
in FY10. The company operates around 0.7m sqf of retail space. Its brands
include Sonata, Titan, Fastrack, Xylus in watches; Tanishq, GoldPlus and Zoya
in jewellery; and Titan Eye+ in its eyewear division
Q Statement of Risk
We believe the key risks that could affect the sector include continued upward
movement of downstream petrochemical products and higher agri-commodity
based raw material costs and the inability of branded consumer companies to
pass on price increases in an increasingly competitive market.The sector enjoys
low coporate tax rates because of factory locations in areas that are designated
as tax benefit zones; any change in this law could affect earnings
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Titan Industries
Discretionary consumption growing strong
despite price headwinds
„ Price inflation; volume growth key metric
Over the last 2-3 months, while gold prices are up ~8%, the prices of diamonds are
up ~60-70%. The ~30% of jewellery sales that is diamond jewellery has seen the
highest price inflation. The risk is on slowing diamond jewellery sales. Titan
passes on all diamond cost increases; Q1FY12E should see a margin expansion due
to inventory gain from diamond stocks.
„ Margin and growth targets; in line with our estimates
Over the next 2-3 years, Titan would like to expand EBIT margins from the current
8.5% to 10% levels. We have built in 9.3% EBIT margins for FY13-14E. We have
built in 16% and 18% volume growth in the watch and jewellery segments in our
estimates (FY12) which are in line with the company's benchmarked expectations.
„ Expansion, growth strategies
Apart from the retail chain expansion across store openings in watches, jewellery
and optics, Titan is opening Helios stores - retailing mid-luxury watches and
Tanishq landmark stares to drive market leadership in the large cities in India.
Titan may also look for an acquisition of a watch brand to augment the watch
business as a proportion of total sales.
„ Valuation: Maintain Buy with price target of Rs5,000
Our price target is derived using UBS’s VCAM tool, assuming WACC of 11.2%,
intermediate growth rate of 17.0%.
Q Titan Industries
Titan Industries is a diversified specialty retailer in India with exposure to the
watch, jewellery and eyewear segments. It began operations as a watch company,
diversifying into the jewellery business in 1995, and the eyewear business in
2007. Watches contributed 22%, jewellery 75%, and eyewear 2% of its revenue
in FY10. The company operates around 0.7m sqf of retail space. Its brands
include Sonata, Titan, Fastrack, Xylus in watches; Tanishq, GoldPlus and Zoya
in jewellery; and Titan Eye+ in its eyewear division
Q Statement of Risk
We believe the key risks that could affect the sector include continued upward
movement of downstream petrochemical products and higher agri-commodity
based raw material costs and the inability of branded consumer companies to
pass on price increases in an increasingly competitive market.The sector enjoys
low coporate tax rates because of factory locations in areas that are designated
as tax benefit zones; any change in this law could affect earnings
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