Buy Titan Industries - Medium term slowdown; visit note::Edelweiss,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Titan Industries (TTAN IN, INR 191, Buy)

Our recent interaction with the Titan Industries (Titan) management re-affirms our belief that the company’s jewellery business continues to grow at a much faster clip than the overall domestic jewellery market. The company also expects its precision engineering business to break even by FY12 end. However, the overhang of depreciating INR on watch margins and gold prices, dampened consumer sentiment for discretionary products, high base and rising competition in eyewear business (facing head-on competition from Reliance’s Vision Express) remain our key concerns. Maintain ‘BUY’ as correction factors these concerns.

Jewellery volumes may be subdued in medium term

Titan’s gold jewellery segment has outperformed the Indian jewellery market with 3% YoY volume growth in Q2FY12 against 26% YoY decline in the latter. However, this segment is facing headwinds owing to sustained high domestic gold prices (benefit of correction in global gold prices offset by INR depreciation) and reduced discretionary spending. We maintain a cautious stance over the medium term for the segment.

Watches: Innovation continues; margins to be tracked

The watches business will benefit from the acquisition of Swiss brand Favre Leuba, which will strengthen positioning at the higher end (existing Swiss brand Xylys is mid segment). The benefit of price hike (6-7% weighted average which takes care of INR till INR50) initiated at fag end of Q2FY12 will benefit in second half of Q3FY12 due to inventory. However, breaching of INR50 is likely to impact watches segment’s margin.

Outlook and valuations: longer term positive; maintain ‘BUY’

Although we remain positive on long term potential of Titan, in the medium term high dampened consumer sentiments and depreciating INR remain key concerns. However, the recent correction factors in these negatives. At CMP, the stock is trading at 30.2x FY12E and 23.5x FY13E EPS. We maintain ‘BUY/Sector Outperformer’.