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UBS Investment Research
Titan Industries
C oncerns allayed
Event: CBDT notification, cost of gold lease, more jewellery issues
A Central Board of Direct Taxes (CBDT) notification has been sent to all
jewellers, requiring that they ask customers to quote the income tax PAN number
on purchase of bullion or jewellery worth more than Rs0.5m. Concerns surround
the cost of gold leasing; also, two to three regional jewellery companies have filed
their red herring prospectus (RHP) and there have been comparisons with Titan.
Impact: concerns addressed
Titan sells ~40% of its jewellery on a cash basis and of this, about 10% of receipts
would be for goods worth more than Rs0.5m. This is an industry-wide notification
and hence, would affect all jewellers; we do not believe this should have a lasting
impact on the jewellery consumption decision. The cost of gold leasing was less
than 3% in FY11 and we believe it should remain around the same in FY12E. We
give a comparison of the key metrics of the jewellery companies that have filed
their RHPs in Table 1. Tanishq’s pan-India business model is unique.
Action: we continue to like Titan’s investment thesis
We reiterate our Buy rating on Titan; we like the strategy of preparing itself for the
upgrading consumer across its watch, jewellery and optics businesses. We believe
management is very capable of executing this visionary strategy.
Valuation: maintain Buy on Titan—the best discretionary play in India
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11.2% and an intermediate growth rate of 17.0%. Titan would trade at 22x FY13E
EV/EBITDA at our price target. We believe Titan will sustain its premium due to
the rise in discretionary consumption and the strong brand equity across categories.
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.
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 corporate 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 �� ��
UBS Investment Research
Titan Industries
C oncerns allayed
Event: CBDT notification, cost of gold lease, more jewellery issues
A Central Board of Direct Taxes (CBDT) notification has been sent to all
jewellers, requiring that they ask customers to quote the income tax PAN number
on purchase of bullion or jewellery worth more than Rs0.5m. Concerns surround
the cost of gold leasing; also, two to three regional jewellery companies have filed
their red herring prospectus (RHP) and there have been comparisons with Titan.
Impact: concerns addressed
Titan sells ~40% of its jewellery on a cash basis and of this, about 10% of receipts
would be for goods worth more than Rs0.5m. This is an industry-wide notification
and hence, would affect all jewellers; we do not believe this should have a lasting
impact on the jewellery consumption decision. The cost of gold leasing was less
than 3% in FY11 and we believe it should remain around the same in FY12E. We
give a comparison of the key metrics of the jewellery companies that have filed
their RHPs in Table 1. Tanishq’s pan-India business model is unique.
Action: we continue to like Titan’s investment thesis
We reiterate our Buy rating on Titan; we like the strategy of preparing itself for the
upgrading consumer across its watch, jewellery and optics businesses. We believe
management is very capable of executing this visionary strategy.
Valuation: maintain Buy on Titan—the best discretionary play in India
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11.2% and an intermediate growth rate of 17.0%. Titan would trade at 22x FY13E
EV/EBITDA at our price target. We believe Titan will sustain its premium due to
the rise in discretionary consumption and the strong brand equity across categories.
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.
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 corporate 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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