Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We hosted Mr. Bhaskar Bhat, MD, Titan Industries for investor meetings. Following
are the key takeaways. For detailed takeaways, see next page.
No impact of downturn, PAN card restriction as yet: While rate of growth has
moderated, Titan hasn’t experienced any impact of downturn as yet in any of its
key business divisions. Neither has it experienced any impact on account of
government regulation regarding PAN card (for any purchase of above Rs 5Lakh
in Jewellery, PAN number is mandatory) as its ticket size is far lower at Rs30-50k.
It will continue to focus on Large format stores (offers higher sales/Sqft, better
inventory turns and <24 months break-even) and strengthen its wedding
offerings. It expects grammage increase to offset decline in Gold price, if any.
Titan can use part of cash generated to buy Tanishq properties in future, in
order to de-risk the model.
Targets Rs35bn sales in Watches by FY15e, Eye‐Wear to break‐even in FY13e:
In Watches, Titan targets Rs35bn turnover by FY15e (Rs12.5bn in FY11) to be
driven by network expansion, introduction of new designs as well as shift
towards branded segment. Titan aspires to expand the category in Eye-wear and
Accessories (currently 177 stores) segment by getting into new sub-categories.
It’s targeting FY13e beak-even and believes potential margins can be higher than
Watches. It intends to enter new life-style categories in medium to long term.
Maintain our ‘BUY’ rating: We continue to like Titan’s dominant presence in its
key business segments and its capital efficient growth model. We expect Titan
to post ~29% EPS cagr for FY11-13e. Maintain ‘BUY’ with TP of Rs250.Severe fall
in Gold prices and significant macro slowdown impacting consumer sentiment
constitutes key risks.
Key takeaways
Jewellery
Titan continues to benefit from shit from unbranded to branded jewellery.
Brand name of Tata, variety of designs and collections, assurance of caratege in
a market where undercaratage is widely prevalent are some of the factors
facilitating this.
While rate of growth has moderated QoQ, Titan hasn’t seen any impact of
perceived downturn as yet.
Notwithstanding the higher Gold prices, Titan continues to charge average 22%
of Gold price as its making charge.
Difference between total growth and SSS growth is ~3-4%.
No impact of PAN card regulation as yet. Pertinent to note that average ticket
size of Tanishq buyer is ~Rs30-50k. According to management, no consumer has
walked out yet owing to PAN card regulation.
Even for ticket sizes above Rs5 lakh, growth remains robust, as per
management.
However its been only ~2 months since this came into effect. So management
expects a proper assessment to take atleast 6 months.
Also, given the government focus on prevention of money laundering, if the
threshold is lowered to Rs1-2 lakh, it can impact revenues.
While management attributed no specific reason to rise in Diamond prices (up
90% in 6 months), it expects to pass on any correction in Diamond prices to
consumers.
Titan sources Diamond from India and doesn’t hedge. Titan enjoys 10%
premium on Diamond compared to its competitors in normal scenario. However
in 1Q its premium went up to 40% as competitors did not increase Diamond
prices owing to high inventory.
Titan doesn’t expect anymore inventory gain on Diamond (1QFY12 gains of
Rs110mn).
Studded jewellery sales were ~23% of Jewellery revenues in 1QFY12. Titan
targets 40% by FY14e.
Part of the reason why Titan’s ticket size is lower is owing to its relatively weaker
presence (limited range) in Wedding segment where the ticket size is higher.
Hence management is focussing on large format stores
As per Titan’s research, wedding jewellery buyer prefers larger store owing to
availability of wide range of designs. Also, the service levels in large format
stores are better.
From Titan’s viewpoint, large format stores not only help increase sales/sq ft but
also increase its market share and build a better brand image. As per
management, large format stores are used as brand positioning tool.
After opening a large format stores in Mumbai and Pune, 2 more are in pipeline
in Hyderabad and Kolkatta. As per management, large format stores take less
then 2 years to break-even. Chennai store achieved breakeven in less than 18
months.
Stock turns are better in Large format stores and hence inventory requirement is
lower.
Tanishq’s medium term strategy is to offer community based as well as theme
based designs in jewelleries. Currently it introduced roughly 3000 designs a
quarter.
Titan also aims to tap into youth segment so as to create a loyal customer base
for future. It believes Youth segment has high potential and needs to be lured
via innovative designs and price points.
Given the rising gold prices and anticipated potential impact on its volumes, in
the medium term Titan aims to work around the price points by offering lower
caratage jewellery (18c, 14c etc) and creating more opportunities of purchase.
Currently out of ~124 Tanishq stores, 90 are Franchisee stores. All large format
stores are company owned stores. Titan offers 9% of sales as margins to
Franchisee partners in Jewellery segment.
Titan intends to use part of the cash generated from operations to buy Tanishq
properties in future and de-risk the model.
Doesn’t see much benefit from Acquisition of competitors except getting hold of
properties.
Lease period for Titan’s Gold-on-lease scheme hasn’t come down (RBI decides it
and currently it’s at 180 days). Lease cost is ~3.5%.
Watches
Titan aspires to reach Rs35bn turnover in Watches by FY15e (currently at
Rs12.5bn @ FY11).
No impact on demand as yet from any macro slowdown.
Increasing penetration of branded Watches is driving the growth. Multiple
ownership of Watches is still to catch up as a trend.
Currently has 300 franchisee (25% of sales is franchisee fee)
Titan’s Watch EBIT margins have remained in a band over the last 2-3 years. This
is owing to investments behind brands. In FY11 it focussed on Fast Track while in
FY12e, its focussing on Helios.
Currently Helios has 13 stores under operation – targets 40 by FY12e end. Helios
stores also retails other brands (>30 brands) which contribute ~80% of its sales.
Expects margin benefits from better mix (higher growth in Titan and Fastrack
compared to Sonata)
SSS growth in Watches is currently in 12-15% range.
Titan’s distribution network is its biggest competitor advantage, as per
management.
Eye‐wear and others
Vision is to establish Eyewear as “Function + Style” product.
25m pieces market growing at 20-25% per annum. Unbranded market
constitutes sizable chunk of the opportunity.
Market size relatively small with Rs25bn. Highly fragmented market with no
national brand. Lack of awareness is the biggest obstacle.
Currently has a network of 177 stores (90 owned). Offers 35% of sales as
franchisee fees.
Management believes potential margins in this segment are higher than
Watches. It expects margins to converge with Watch margins in 3-4 years.
FY13 break-even for the unit is achievable as per management.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We hosted Mr. Bhaskar Bhat, MD, Titan Industries for investor meetings. Following
are the key takeaways. For detailed takeaways, see next page.
No impact of downturn, PAN card restriction as yet: While rate of growth has
moderated, Titan hasn’t experienced any impact of downturn as yet in any of its
key business divisions. Neither has it experienced any impact on account of
government regulation regarding PAN card (for any purchase of above Rs 5Lakh
in Jewellery, PAN number is mandatory) as its ticket size is far lower at Rs30-50k.
It will continue to focus on Large format stores (offers higher sales/Sqft, better
inventory turns and <24 months break-even) and strengthen its wedding
offerings. It expects grammage increase to offset decline in Gold price, if any.
Titan can use part of cash generated to buy Tanishq properties in future, in
order to de-risk the model.
Targets Rs35bn sales in Watches by FY15e, Eye‐Wear to break‐even in FY13e:
In Watches, Titan targets Rs35bn turnover by FY15e (Rs12.5bn in FY11) to be
driven by network expansion, introduction of new designs as well as shift
towards branded segment. Titan aspires to expand the category in Eye-wear and
Accessories (currently 177 stores) segment by getting into new sub-categories.
It’s targeting FY13e beak-even and believes potential margins can be higher than
Watches. It intends to enter new life-style categories in medium to long term.
Maintain our ‘BUY’ rating: We continue to like Titan’s dominant presence in its
key business segments and its capital efficient growth model. We expect Titan
to post ~29% EPS cagr for FY11-13e. Maintain ‘BUY’ with TP of Rs250.Severe fall
in Gold prices and significant macro slowdown impacting consumer sentiment
constitutes key risks.
Key takeaways
Jewellery
Titan continues to benefit from shit from unbranded to branded jewellery.
Brand name of Tata, variety of designs and collections, assurance of caratege in
a market where undercaratage is widely prevalent are some of the factors
facilitating this.
While rate of growth has moderated QoQ, Titan hasn’t seen any impact of
perceived downturn as yet.
Notwithstanding the higher Gold prices, Titan continues to charge average 22%
of Gold price as its making charge.
Difference between total growth and SSS growth is ~3-4%.
No impact of PAN card regulation as yet. Pertinent to note that average ticket
size of Tanishq buyer is ~Rs30-50k. According to management, no consumer has
walked out yet owing to PAN card regulation.
Even for ticket sizes above Rs5 lakh, growth remains robust, as per
management.
However its been only ~2 months since this came into effect. So management
expects a proper assessment to take atleast 6 months.
Also, given the government focus on prevention of money laundering, if the
threshold is lowered to Rs1-2 lakh, it can impact revenues.
While management attributed no specific reason to rise in Diamond prices (up
90% in 6 months), it expects to pass on any correction in Diamond prices to
consumers.
Titan sources Diamond from India and doesn’t hedge. Titan enjoys 10%
premium on Diamond compared to its competitors in normal scenario. However
in 1Q its premium went up to 40% as competitors did not increase Diamond
prices owing to high inventory.
Titan doesn’t expect anymore inventory gain on Diamond (1QFY12 gains of
Rs110mn).
Studded jewellery sales were ~23% of Jewellery revenues in 1QFY12. Titan
targets 40% by FY14e.
Part of the reason why Titan’s ticket size is lower is owing to its relatively weaker
presence (limited range) in Wedding segment where the ticket size is higher.
Hence management is focussing on large format stores
As per Titan’s research, wedding jewellery buyer prefers larger store owing to
availability of wide range of designs. Also, the service levels in large format
stores are better.
From Titan’s viewpoint, large format stores not only help increase sales/sq ft but
also increase its market share and build a better brand image. As per
management, large format stores are used as brand positioning tool.
After opening a large format stores in Mumbai and Pune, 2 more are in pipeline
in Hyderabad and Kolkatta. As per management, large format stores take less
then 2 years to break-even. Chennai store achieved breakeven in less than 18
months.
Stock turns are better in Large format stores and hence inventory requirement is
lower.
Tanishq’s medium term strategy is to offer community based as well as theme
based designs in jewelleries. Currently it introduced roughly 3000 designs a
quarter.
Titan also aims to tap into youth segment so as to create a loyal customer base
for future. It believes Youth segment has high potential and needs to be lured
via innovative designs and price points.
Given the rising gold prices and anticipated potential impact on its volumes, in
the medium term Titan aims to work around the price points by offering lower
caratage jewellery (18c, 14c etc) and creating more opportunities of purchase.
Currently out of ~124 Tanishq stores, 90 are Franchisee stores. All large format
stores are company owned stores. Titan offers 9% of sales as margins to
Franchisee partners in Jewellery segment.
Titan intends to use part of the cash generated from operations to buy Tanishq
properties in future and de-risk the model.
Doesn’t see much benefit from Acquisition of competitors except getting hold of
properties.
Lease period for Titan’s Gold-on-lease scheme hasn’t come down (RBI decides it
and currently it’s at 180 days). Lease cost is ~3.5%.
Watches
Titan aspires to reach Rs35bn turnover in Watches by FY15e (currently at
Rs12.5bn @ FY11).
No impact on demand as yet from any macro slowdown.
Increasing penetration of branded Watches is driving the growth. Multiple
ownership of Watches is still to catch up as a trend.
Currently has 300 franchisee (25% of sales is franchisee fee)
Titan’s Watch EBIT margins have remained in a band over the last 2-3 years. This
is owing to investments behind brands. In FY11 it focussed on Fast Track while in
FY12e, its focussing on Helios.
Currently Helios has 13 stores under operation – targets 40 by FY12e end. Helios
stores also retails other brands (>30 brands) which contribute ~80% of its sales.
Expects margin benefits from better mix (higher growth in Titan and Fastrack
compared to Sonata)
SSS growth in Watches is currently in 12-15% range.
Titan’s distribution network is its biggest competitor advantage, as per
management.
Eye‐wear and others
Vision is to establish Eyewear as “Function + Style” product.
25m pieces market growing at 20-25% per annum. Unbranded market
constitutes sizable chunk of the opportunity.
Market size relatively small with Rs25bn. Highly fragmented market with no
national brand. Lack of awareness is the biggest obstacle.
Currently has a network of 177 stores (90 owned). Offers 35% of sales as
franchisee fees.
Management believes potential margins in this segment are higher than
Watches. It expects margins to converge with Watch margins in 3-4 years.
FY13 break-even for the unit is achievable as per management.
No comments:
Post a Comment