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Our recent interaction with the Titan Industries (Titan) management reaffirms
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’.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Our recent interaction with the Titan Industries (Titan) management reaffirms
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’.
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