Page 1
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Edelweiss Securities Limited
Our Contra BUY call on Titan has worked well with Stock up 31% since our
Note - When the going gets tough, the tough get going. Q1FY14 was a
blockbuster quarter well ahead of our expectations. Key positives were:
(i) 47.2% YoY growth in jewellery business led by 67% YoY grammage
surge; (ii) adjusting for INR340mn notional loss, EBIT margin in jewellery
was flattish YoY (despite lower studded share); and (iii) added 37,000 sq
ft in jewellery (already met 37% of FY14 guidance). Key negatives include:
(i) 367bps YoY dip in watches margin (due to one-time impact of wage
settlement and INR depreciation); and (ii) drop in studded share to 16%
(as expected). The withdrawal of restrictions on gold on lease model by
RBI will definitely be advantageous to Titan. We expect Titan to be
prioritised in the sourcing of gold under the curtailed supply scenario due
to its large size, years of strong operating performance, healthy balance
sheet and the Tata brand. In our view, it is the best play on discretionary
consumer space. Maintain ‘BUY’ with revised TP of INR324.
Robust revenue growth, jewellery customer growth at 49% YoY
Tanishq reported robust 29% YoY like-to-like (LTL) growth (42% overall), while Goldplus
LTL surged 37% YoY. Watches sales growth surged from 1.5% YoY in Q4FY13 to 11.4%
YoY in Q1FY14. Eyewear revenue grew strongly at with 34% YoY jump.
Margins disappoint on account of one-offs
Jewellery EBIT margin dipped 135bps YoY (notional cost of INR340mn booked in
Grammage Scheme; can potentially reverse in coming quarters) with fall in share of
studded to 16%. Titan booked. Watches EBIT margin tanked 367bps YoY to 10.3%.
EBITDA margin for the consolidated business slipped 173bps YoY.
Outlook and valuations: Go contra; maintain ‘BUY’
At CMP, the stock is trading at P/E of 27.0x and 22.4x FY14E and FY15E EPS,
respectively. As RBI reversed ban on gold on lease and requirement of upfront
payment we reverse the earlier cut in numbers and increase EPS for FY14E and FY15E
by 6.7% and 13.1% respectively. Also, we increase target multiple to 28x (26x earlier, as
the concerns on inventory risk go away) to arrive at a revised TP of INR324 (INR267
earlier). We maintain ‘BUY’ on the stock with ‘Sector Outperformer’ rating.
RESULT UPDATE
TITAN INDUSTRIES Jewellery shines; one-offs singe margin
EDELWEISS 4D RATINGS
Absolute Rating BUY
Rating Relative to Sector Outperformer
Risk Rating Relative to Sector Low
Sector Relative to Market Overweight
MARKET DATA (R: TITN.BO, B: TTAN IN)
CMP : INR 259
Target Price : INR 324
52-week range (INR) : 314 / 200
Share in issue (mn) : 887.8
M cap (INR bn/USD mn) : 230 / 3,811
Avg. Daily Vol.BSE/NSE(‘000) : 2,756.0
SHARE HOLDING PATTERN (%)
Current Q4FY13 Q3FY13
Promoters *
53.1 53.1 53.1
MF's, FI's & BK’s 2.8 2.8 3.1
FII's 20.1 19.1 18.3
Others 24.0 25.0 25.5
* Promoters pledged shares
(% of share in issue)
: NIL
PRICE PERFORMANCE (%)
Stock Nifty
EW Retail
Index
1 month 14.3 (2.9) 2.7
3 months (4.2) (3.4) 3.9
12 months 17.0 9.3 18.6
Abneesh Roy
+91 22 6620 3141
[email protected]
Pooja Lath
+91 22 6620 3075
[email protected]
India Equity Research| Retail
August 1, 2013
Financials (INR mn)
Year to March Q1FY14 Q1FY13 % change Q4FY13 % change FY13 FY14E FY15E
Net rev. 31,077 22,057 40.9 26,132 18.9 101,233 120,342 141,465
EBITDA 2,449 2,120 15.6 2,665 (8.1) 10,125 11,914 14,288
Net profit 1,825 1,561 16.9 1,850 (1.3) 7,249 8,535 10,286
EPS (INR) 2.1 1.8 2.1 8.2 9.6 11.6
P/E (x) 31.8 27.0 22.4
EV/EBITDA 21.6 17.9 14.8
ROAE (%) 42.3 37.6 35.2
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2 Edelweiss Securities Limited
Q1FY14 conference call | Key Takeaways
Jewellery: In Q1FY14, jewellery sales rose 47% YoY to INR2,614mn with a high grammage
growth of 67% YoY. However, PBIT margin declined 135bps YoY primarily due to the
notional loss in inventory of INR340mn (which could potentially reverse) as a result of the
Gold Grammage scheme; the decline can also be attributed to the fall in the share of high
margin diamond jewellery business.
Grammage growth: Predominant reasons for the substantial increase in grammage growth
were: (1) sharp decline in gold prices; (2) good number of marriage days; and (3) Titan’s
campaign highlighting affordability.
Gold prices: Gold prices in Q1FY14 fell 7% YoY.
Coins and gold bars: Titan has stopped selling gold coins and bars since mid July. Total
share of gold coins and bars was 10% in Q1FY14.
Studded share: There has been a sharp dip in studded jewellery share to 16% YoY which
was due to fall in prices of gold which shifted consumer sentiments towards buying gold
jewellery. Value growth in studded jewellery was flattish YoY. Titan is taking measures to
revive the sale of diamond jewellery with new initiatives and programmes, e.g., the
company has started a discount offer of flat 15% off on all its diamond jewellery.
Gold Grammage scheme: The scheme allows the customer to fix the quantity of gold that is
based on the gold rate prevailing on the date the customer takes the scheme i.e., from the
date of payment of installment. The value of this quantity at the rate prevailing on the date
of sale is allowed as credit against the sale price of jewellery. Titan is naturally hedged in
this exposure as it buys the requisite quantity of gold at the price decided. But since there
has been a substantial decline in prices of gold, this resulted in a notional loss of inventory
(valued on FIFO basis) amounting to INR340mn (expected to recover with increase in gold
prices).
Titan has a total exposure of ~INR12bn through the two schemes of Gold Harvest and
Grammage scheme. Grammage scheme contributes about one third to the total.
RBI’s new regulation: The new regulation that mandates keeping 20% of the imported gold
earmarked for exporters is for importers of gold—banks/trading houses—and not for gold
consumers. Titan has no obligation to export for procuring supply of gold. The overall
scheme is for restricting the supply of gold in India. As per available data, ~70-100 tonnes of
gold was exported in FY13. As per the new regulation, supply of ~350-500 tonnes of gold
would have been available. But this is as per past data. Titan stands at a good position
compared to peers with respect to the procurement of gold available for import because of
its huge market share, reputation, brand name and robust balance sheet.
Gold sourcing: Titan is sourcing gold from the gold deposit scheme of banks like SBI as an
alternative for the past two months. It is getting this gold on a lease for 180 days credit (on
gold on lease model) as domestic banks which get supply of gold from domestic sources are
allowed to lend gold on 180 days credit. Another source of gold is the ETFs which SEBI has
permitted to lend 20% of deposited gold. On both these sources, obligation of exporting
20% is not applicable as these are not imported gold.
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Titan Industries
3 Edelweiss Securities Limited
Custom duty hike: Due to increase in custom duty from 6% to 8%, Titan gained around
INR150mn in Q1FY14 and also expects some gains in Q2FY14.
Demand: Titan believes that the proportion of customers who have pushed ahead gold
purchase is not much and expects demand to be good in the coming quarter.
Eyewear: Titan plans to open 40 new stores in FY14 and has many new products in the
pipeline. The company will be launching a new product in Q2FY14 for age group of 40 and
above and is also eyeing new launches in the lens segment.
Watches: The overall demand in watches has been sluggish because of the decline in
discretionary spends with volume growth of only 3% YoY. LTL growth in the watch business
has declined 2% YoY, though the sales value growth stood at 12% YoY. LTL growth in
Fastrack and Helios was also less at 8% YoY and 5% YoY, respectively. Margins of the watch
business plunged 366bps YoY due to the wage settlement contract.
Precision engineering: This segment’s top line grew 60% YoY. PED is expected to turn into
an INR2,000mn business for the company in FY14 and has strong order book in place for
nine months from now. This business is not margin dilutive for Titan.
Outlook: Titan remains aggressive on top line growth and believes that turnover of INR120-
125bn is achievable in FY14. However, there is a possibility of margin dilution. The company
is also confident of resolving the supply of imported gold issue in the coming few weeks.
Expansion: In the jewellery segment, Titan added 37,000 sq ft in Q1FY14 and expects to add
another 75,000 sq ft by Q3FY14 end.
Cash: The company has a cash reserve of over INR20bn as on June 30, 2013.
Our recent meeting with Titan’s top management | Key takeaways
Take on gold coin and bar sale: Post RBI’s restriction on gold import many banks have
gradually stopped selling gold coins. Gold coin and gold bar sales are primarily investment
related. Titan also stopped selling coins and bars since mid July. Though this may impact top
line, profits may not be impacted significantly (margin in diamond jewellery is 2.5x that in
gold jewellery, which is 2.5x of gold coins and bars).
Watches: As demand continues to remain weak in the watches division, Titan is relying on
innovation to boost it. With the INR playing a spoil sport for the company’s watches
division, it is looking at price hikes in the near term. It has added Police and Timberland
brands amongst other exclusive licence tie ups it has with global brands like Tommy Hilfiger,
French Connection, etc. To improve margins over the long term, the company is setting up a
stainless steel components factory (to reduce dependence on imports and provide some
insulation from INR depreciation), which will come on stream by FY15. Stainless steel is
heavily used in premium watches and is high in terms of value. Plastics and movement will
continue to be imported. The plant will need a capex of INR700-800mn.
Eyewear: Titan Eye+ is looking at aggressive growth, with plans to add 40 stores in FY14,
mostly through the franchise route. Titan is relying heavily on innovation to drive growth in
this category. In Q2FY13, it launched on-line eye tests. Now, it is planning to expand its
C K Venkataraman
COO - Jewellery, Titan
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4 Edelweiss Securities Limited
range of sunglasses offerings. We expect the company to benefit from innovation focus in a
highly unorganised segment.
New product categories: As Titan moves from being a watches and jewellery focused brand
to a lifestyle focused brand, the company’s board of directors has decided (received
shareholder approval) to change the company’s name to Titan Company. It is looking at a
slew of products ranging from sarees to writing instruments, mobile phones, musical
instruments, educational accessories and kitchen equipment (may not necessarily enter all
these segments). Titan is focusing on categories where the market is large and unorganised
where it can differentiate and use innovations and strong brand image to establish category
dominance. The company has created a 'New Business Division' under a dedicated CEO to
look at various segments, exhibiting increased focus on new growth drivers. It plans to
exploit its current distribution points for its new products and thus will look to enter
categories wherein brand extension is possible. For instance, Titan may soon launch
helmets and perfumes through its Fastrack distribution network in departmental stores like
Shoppers Stop, Lifestyle and World of Titan.
Loyalty card: Titan ran three separate loyalty programmes till recently (Vista for its Titan
Eye Plus, Anuttara for Tanishq and Signet for World of Titan). Now, the company has
merged its loyalty programmes across three brands into one Encircle Loyalty card. In our
view, loyalty programme is a key revenue contributor and unifying into one card for the
Group as a whole will help promote sales across divisions.
FY13 Annual report highlights
Overall business
• Titan added 126 stores (2.35 lakh sq ft) across watches, jewellery and eyewear
businesses. As at March 31, 2013, the company had 953 stores (over 1.27mn sq ft).
Capital investments were also made during the year in manufacturing facilities of
watches division and precision engineering division.
• The company’s exports stood at INR2bn (up 23% YoY) in FY13 comprising watches and
precision engineered components.
• FY13 was a challenging year for the watches segment, which grew 9.6% YoY to
INR17bn. The consumer / retail sentiment remained subdued during most parts of the
year. The number of wedding dates were much lower compared to FY12.
• Malls and department stores also registered lower walk ins. Retail growth in the multi
brand outlet channel was lower than in World of Titan and Fastrack stores.
• Titan’s jewellery division sales grew 14.8% YoY to INR81bn. Customer sentiments were
affected by inflation, uncertain economic conditions and movements in gold rate,
leading to poor walk-ins.
• The government and the Reserve Bank of India initiated few measures to contain the
current account deficit and money laundering, to cite a few, by increasing customs duty
on gold, restricting the credit period on gold imports, extending provisions of
Prevention of Money Laundering Act, 2002 as amended, to the gem & jewellery sector
etc. Final notifications on some of these are still awaited.
Jewellery
H G Raghunath
CEO – Watches, Titan
Subramaniam S
CFO, Titan
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5 Edelweiss Securities Limited
• While sales growth in FY13 was perhaps the lowest (in percent terms) in the past
decade, profit growth was among the highest, taking the division’s EBIT margin beyond
the 10% mark for the first time.
• A new jewellery manufacturing facility is being set with state-of-the-art technology at
Pantnagar. This facility, aimed at catering to northern markets as well as to reduce
manufacturing and logistics costs, is being developed at a capital expenditure of
INR450mn, of which INR240mn was incurred in FY13.
• For FY14, Titan is planning significant network expansion, region-specific product
introduction and new launches across the price spectrum.
• Titan has always held that “lower” price of gold is actually a good thing in two
significant ways: (1) at lower prices, more customers come into the jewellery category
and each one of them is psychologically tuned to buy more. The jewellery industry will
benefit from lower prices. Overall tonnage is expected to be better; and (2) at lower
prices, making charges of Titan brands will come closer to other big jewelers.
• In order to counter the potential competitive effect of major regional players, the
jewellery division has started the following initiatives: (1) KYC (Know Your Customer)
programme through which Titan detects any significant shift to a neighbouring
competitor and puts together a response basis; and (2) pre-emptive competitive action
plan that is rolled out in every neighbourhood where a new competitor is about to
open, a couple of months before the opening, to blunt the impact.
Watches and accessories
• The Indian watch market is estimated at ~55mn units and valued at around INR47bn.
Over 50% of this market is unorganised. The organised market is dominated by Titan,
with its collection of brands having 65% plus market share.
• The company’s market share in multi-brand outlets grew to ~49% during FY13 (up 2%
YoY). Titan entered the stylish leather belts and wallets space which have so far been
well accepted and is in the process of being rolled out nationally.
• Titan is setting up a new manufacturing plant at Coimbatore (Tamil Nadu) to produce
high end stainless steel (SS) cases with an investment of INR1bn. In addition to
technical services support, SEC will also procure SS Cases from the company to meet its
market demand.
• The Pant Nagar assembly unit could quickly ramp up volumes from 3.0mn to 4.5mn in
FY13. Further increase of capacity up to 1mn is planned in FY14.
• Favre Leuba, the heritage Swiss brand that the company acquired in FY12, is being
actively worked on for a launch during FY15.
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Chart 1: Jewellery margin decline YoY Chart 2: Jewellery revenue growth robust
Chart 3: Watches margin dips YoY Chart 4: Watches revenue growth slows down
Chart 5: Others EBIT margin in positive territory Chart 6: Eyewear sales boost others’ revenue growth
Source: Company, Edelweiss research
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Table 1: Segmental performance
Source: Company, Edelweiss research
Table 2: Growth across formats
Source: Company, Edelweiss research
Table 3: Aggressive expansion plan (number of stores)
Source: Company, Edelweiss research
% growth % growth
Titan (Year to March) Q1FY14 Q1FY13 Y-o-Y Q4FY13 Q-o-Q
Revenue
Watches & clocks 4,017 3,607 11.4 4,199 (4.3)
Jewellery 26,142 17,755 47.2 20,933 24.9
Others 1,232 896 37.5 1,288 (4.3)
Corporate unallocated 69 50 38.0 8 741.5
Total 31,460 22,308 41.0 26,428 19.0
PBIT
Watches & clocks 414 504 (17.9) 456 (9.3)
Jewellery 2,306 1,806 27.7 2,487 (7.3)
Others 28 (16) NM 11 145.6
Total 2,748 2,294 19.8 2,955 (7.0)
PBIT margins
Watches & clocks 10.3 14.0 (367) 10.9 (56)
Jewellery 8.8 10.2 (135) 11.9 (306)
Others 2.3 (1.8) NM 0.9 139
Total 8.7 10.3 (155) 11.2 (245)
Sales value growth (% YoY) Like to Like growth (% YoY)
World of Titan 4 (1)
Tanishq 42 29
Goldplus 36 37
Helios 52 5
Fastrack 46 8
LFS - Watches 12 (2)
Titan Eye+ 26 21
FY11 FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14
Jewellery 151 163 166 168 176 179 184
Tanishq 120 129 132 134 143 146 151
Goldplus 29 32 32 32 31 31 31
Zoya 2 2 2 2 2 2 2
Watches 364 459 472 502 527 550 555
World of Titan 311 332 337 348 354 364 368
Fastrack 47 102 110 122 132 140 139
Helios 6 25 25 32 41 46 48
EyePlus 150 205 209 209 215 224 229
Total 665 827 847 879 918 953 968
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Outlook and valuations: Positive; maintain ‘BUY’
RBI, in July, reversed a few regulations on gold imports and has done away with stringent
curbs imposed that had placed restrictions on the gold lease model and required upfront
cash payments that had hiked costs to jewelers by way of interest and hedging. We had
highlighted in our report, When the going gets tough, the tough get going, dated June 13,
2013, that gold on lease constitutes only 8% of total imports in India and the ban seemed
unnecessary. We had cut our EPS numbers for Titan by 10.4% for FY14E and 15.0% for
FY15E post those announcements. However, post withdrawal of the restrictions, we reverse
these assumptions as the company will no longer need debt. We thus increase our FY14E
and FY15E EPS by 6.7% and 13.1%, respectively (though remain a little conservative on the
margin front due to reduced studded share).
We expect volume growth to be robust in FY14 aided by a large number of marriage days.
Also, sustained retail expansion (added 148,274sq.ft in jewellery in FY13; added 37,000sq.ft
in Q1FY14 – 37% of FY14E target), we believe, will boost growth. In light of these factors,
coupled with eyewear turning profitable in H2FY14, we continue to recommend Titan as
our top pick in our retail universe.
As concerns of inventory risks go away, we increase our target P/E to 28x (26x earlier),
arriving at a target price of INR324 (INR267 earlier). We maintain ‘BUY’ recommendation
and ‘Sector Outperformer’ rating on the stock.
Chart 7: 1 year forward PE chart
Source: Edelweiss research
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Financial snapshot (INR mn)
Year to March Q1FY14 Q1FY13 % change Q4FY13 % change FY13 FY14E FY15E
Net revenues 31,077 22,057 40.9 26,132 18.9 101,233 120,342 141,465
Raw material costs 24,212 16,250 49.0 19,351 25.1 75,134 89,053 104,401
Ad spend 1,047 1,034 1.2 666 57.1 3,771 4,814 5,659
Employee expenses 1,306 1,039 25.6 1,476 (11.6) 4,898 5,776 6,790
Other expenses 2,063 1,613 27.9 1,973 4.5 7,305 8,785 10,327
EBITDA 2,449 2,120 15.6 2,665 (8.1) 10,125 11,914 14,288
Depreciation 146 123 18.6 150 (2.3) 562 647 743
EBIT 2,303 1,996 15.4 2,516 (8.4) 9,563 11,267 13,545
Other income 382 252 51.9 295 29.6 1,009 1,142 1,307
EBIT including other income 2,686 2,248 19.5 2,811 (4.5) 10,572 12,409 14,851
Interest 170 126 35.2 142 19.8 506 554 565
Profit before tax 2,515 2,122 18.5 2,669 (5.7) 10,065 11,855 14,286
Tax 691 561 23.0 819 (15.7) 2,816 3,319 4,000
Core profit 1,825 1,561 16.9 1,850 (1.3) 7,249 8,535 10,286
Diluted EPS (INR) 2.1 1.8 16.9 2.1 (1.3) 8.2 9.6 11.6
As % of net revenues
Raw material 77.9 73.7 74.1 74.2 74.0 73.8
Ad spend 3.4 4.7 2.5 3.7 4.0 4.0
Employee cost 4.2 4.7 5.6 4.8 4.8 4.8
Other expenses 6.6 7.3 7.6 7.2 7.3 7.3
Total expenses 92.1 90.4 89.8 90.0 90.1 89.9
EBITDA 7.9 9.6 10.2 10.0 9.9 10.1
PBT 8.1 9.6 10.2 9.9 9.9 10.1
Adjusted net profit 5.9 7.1 7.1 7.2 7.1 7.3
Tax rate 27.5 26.4 30.7 28.0 28.0 28.0
Change in Estimates FY14E FY15E
New Old % change New Old % change Comments
Net revenue 120,342 120,051 0.2 141,465 141,092 0.3
EBITDA 11,914 12,245 (2.7) 14,288 14,391 (0.7) Dip in FY14 due to lower studded
share
EBITDA margin 9.9 10.2 10.1 10.2
Core profit 8,535 8,002 6.7 10,286 9,096 13.1 As gold on lease returns, debt no
longer needed so interest burden
reduces sharply
PAT margin 7.1 6.7 7.3 6.4
Capex 1,232 1,500 (17.8) 1,510 1,510 0.0
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Company Description
Titan was incorporated in 1984 as a joint venture between the TATA Group and Tamil Nadu
Industrial Development Corporation (TIDCO), a Government of Tamil Nadu undertaking. The
company manufactures and markets quartz watches since 1987 and is now India’s leading
watch manufacturer and retailer. Gradually, jewellery, precision engineering, eyewear,
accessories, and licensed products were added to the watches portfolio to leverage on the
premium positioning that was assiduously achieved and the success of the Titan brand was
extended to Tanishq and other retail businesses. Its watch brands include Titan, Edge,
Fastrack, Nebula, Raga, Steel, Regalia, Bandhan, Zoop, and Sonata. The company has also
acquired a license for marketing global brands Tommy Hilfiger and Hugo Boss in India.
Investment Theme
The Indian retail landscape is evolving with interplay of several demographic and economic
factors. The long-term prospects backed by changing consumer behaviour in favour of larger
discretionary spending, has set the stage for a healthy growth in the retail space over the
next five years. The big opportunity lies in the growing share of organised retail with
growing trend among consumers to allocate a larger share of income to consumption and
gradual improvement in lifestyle.
Titan has assiduously positioned itself in the premium watch and designer jewellery space.
With constant product innovation it has become the largest organised player in both these
segments. Given its well established brand and sound management we expect Titan to
replicate this success in its new eyewear venture as well. We believe Titan has the ability to
create significant value with its large distribution presence, strong brand, designing skills
and proven execution track record.
Key Risks
Regulatory hurdles: As gold is one of the key import articles, Government may take action
to curb its demand thereby impacting the jewellery business by reducing demand and/or
increasing costs like customs duty, lease rate, etc.
Deterioration of macro conditions: Poor macro outlook could lead to prolonged slowdown
in the company’s growth as the company’s revenues depend on discretionary spend.
Volatility in gold prices: Gold prices have a significant bearing on gold demand. Any steep
rise in prices results in lower demand, and investment buying that comes in is low margin.
Margin pressure due to deterioration in product mix and investment buying:
Down trading in watches and jewellery divisions on account of fall in discretionary spending
and higher growth in tier II and IV towns could impact margins.
Sustained losses in new initiatives: New initiatives like Eye+ and the precision engineering
division are currently a drain on profitability. Prolonged losses in these divisions will impact
overall profitability.
Business seasonal, restricted to marriage season and festivals: The jewellery segment is
seasonal with respect to marriage season and festivals. Additionally, the number of
wedding dates varies in a year. This could impact the company’s revenue
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Titan Industries
Financial Statements
Income statement (INR mn)
Year to March FY12 FY13 FY14E FY15E
Net revenue 88,484 101,233 120,342 141,465
Materials costs 65,402 75,134 89,053 104,401
Gross profit 23,082 26,099 31,289 37,064
Employee costs 3,977 4,898 5,776 6,790
Other Expenses 6,937 7,305 8,785 10,327
Advertisement & sales costs 3,814 3,771 4,814 5,659
EBITDA 8,354 10,125 11,914 14,288
Depreciation & Amortization 456 562 647 743
EBIT 7,897 9,563 11,267 13,545
Other income 945 1,009 1,142 1,307
EBIT incl. other income 8,842 10,572 12,409 14,851
Interest expenses 437 506 554 565
Profit before tax 8,405 10,065 11,855 14,286
Provision for tax 2,390 2,816 3,319 4,000
Net profit 6,015 7,249 8,535 10,286
Share in profit of associates (1) 4 4 4
Profit after minority interest 6,014 7,254 8,539 10,290
Shares outstanding (mn) 888 888 888 888
Diluted EPS (INR) 6.8 8.2 9.6 11.6
Dividend per share (INR) 1.8 2.1 2.5 3.0
Dividend payout (%) 25.8 25.7 26.0 26.0
Common size metrics
Year to March FY12 FY13 FY14E FY15E
Materials costs 73.9 74.2 74.0 73.8
Employee expenses 4.5 4.8 4.8 4.8
EBITDA margins 9.4 10.0 9.9 10.1
Net profit margins 6.8 7.2 7.1 7.3
Growth ratios (%)
Year to March FY12 FY13 FY14E FY15E
Revenues 35.4 14.4 18.9 17.6
EBITDA 35.4 21.2 17.7 19.9
Net profit 38.9 20.5 17.7 20.5
EPS 38.9 20.5 17.7 20.5
Key Assumptions
Year to March FY12 FY13 FY14E FY15E
Macro assumptions
GDP(Y-o-Y %) 6.2 5.0 5.6 6.5
Inflation (Avg) 8.9 7.4 5.2 6.0
Repo rate (exit rate) 8.5 7.5 6.8 6.0
USD/INR (Avg) 48.0 54.5 58.0 56.0
Company assumptions
Revenue growth (Y-o-Y %)
Watch - growth (%) 20.9 9.7 12.0 14.0
Jewellery - growth (%) 40.9 14.8 20.0 18.0
Eyewear - growth (%) 26.0 18.0 25.0 22.0
Other - growth (%) (47.2) 96.2 30.0 26.0
EBITDA margin (%)
COGS as % of sales 73.9 74.2 74.0 73.8
Gold as % of COGS 79.8 80.1 80.5 80.5
Components as % of COGS 9.4 9.5 9.6 9.6
Purchase goods as % of COGS 17.6 17.3 17.2 17.2
Staff costs as % of sales 4.5 4.8 4.8 4.8
A&P as % of sales 4.3 3.7 4.0 4.0
Financial assumptions
Tax rate (%) 28.4 28.0 28.0 28.0
Capex (INR mn) 1,283 1,225 1,232 1,510
Debtor days 9 11 11 11
Inventory days 101 118 119 119
Payable days 95 97 97 97
Cash conversion cycle (days) 15 33 33 33
Depreciation as % of gross block 6.1 6.4 6.4 6.4
Interest rate on cash 9.7 8.8 10.0 7.8
Dividend as % of net profit 25.8 25.7 26.0 26.0
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12 Edelweiss Securities Limited
Retail
Peer comparison valuation
Market cap Diluted PE (X) EV/EBITDA (X) ROAE (%)
Name (USD mn) FY14E FY15E FY14E FY15E FY14E FY15E
Titan Industries 3,811 27.0 22.4 17.9 14.8 37.6 35.2
Future Retail 273 8.6 19.5 5.4 5.4 5.2 (13.4)
Jubilant Foodworks 1,192 42.1 32.0 22.3 16.8 33.3 31.7
Shoppers Stop 495 68.0 46.8 23.4 17.1 8.6 11.7
Median - 34.6 27.4 20.1 15.8 21.0 21.7
AVERAGE - 36.5 30.2 17.2 13.5 21.1 16.2
Source: Edelweiss research
Cash flow metrics
Year to March FY12 FY13 FY14E FY15E
Operating cash flow 1,594 1,158 9,700 7,791
Investing cash flow (699) 3,338 (1,232) (1,510)
Financing cash flow (2,349) (2,740) (3,135) (3,674)
Net cash flow (1,453) 1,756 5,333 2,607
Capex (1,283) (1,225) (1,232) (1,510)
Dividends paid (1,806) (2,181) (2,576) (3,104)
Profitability & efficiency ratios
Year to March FY12 FY13 FY14E FY15E
ROAE (%) 48.2 42.3 37.6 35.2
ROACE (%) 61.5 55.7 49.8 46.4
Inventory day 101 118 119 119
Debtors days 9 11 11 11
Payable days 95 97 97 97
Cash conversion cycle (days) 15 33 33 33
Current ratio 1.0 1.1 1.1 1.2
Debt/Equity - - - -
Interest coverage 18.1 18.9 20.3 24.0
Operating ratios
Year to March FY12 FY13 FY14E FY15E
Total asset turnover 6.9 5.9 5.3 4.8
Fixed asset turnover 24.8 22.1 22.5 23.5
Equity turnover 7.1 5.9 5.3 4.8
Valuation parameters
Year to March FY12 FY13 FY14E FY15E
Diluted EPS (INR) 6.8 8.2 9.6 11.6
Y-o-Y growth (%) 38.9 20.5 17.7 20.5
CEPS (INR) 7.3 8.8 10.3 12.4
Diluted PE (x) 38.3 31.8 27.0 22.4
Price/BV (x) 15.8 11.7 9.0 7.0
EV/Sales (x) 2.5 2.2 1.8 1.5
EV/EBITDA (x) 26.4 21.6 17.9 14.8
Dividend yield (%) 0.7 0.8 1.0 1.2
Balance sheet (INR mn)
As on 31st March FY12 FY13 FY14E FY15E
Equity capital 888 888 888 888
Reserves & surplus 13,721 18,811 24,775 31,961
Shareholders funds 14,609 19,699 25,662 32,849
Long term debt 59 - 27 21
Current maturity of long term 54 60 24 19
Borrowings 113 60 50 40
Deferred tax liability (35) (78) (78) (78)
Sources of funds 14,687 19,681 25,635 32,811
Tangible assets 3,630 4,466 5,319 6,076
Intangible assets 209 173 173 173
CWIP (incl. intangible) 249 418 150 160
Total net fixed assets 4,088 5,057 5,642 6,409
Non current investments 24 29 29 29
Cash and equivalents 9,671 11,390 16,723 19,330
Inventories 28,820 36,803 39,235 46,121
Sundry debtors 1,652 1,658 1,978 2,325
Loans and advances 2,481 3,722 3,693 4,341
Other current assets 328 95 95 95
Total current assets (ex cash) 33,281 42,278 45,001 52,883
Trade payable 18,910 20,980 23,666 27,745
Others current liabilities 13,467 18,094 18,094 18,094
Total current liabilities & 32,377 39,074 41,760 45,839
Net current assets (ex cash) 904 3,205 3,241 7,044
Uses of funds 14,687 19,681 25,635 32,811
Book value per share (INR) 16.5 22.2 28.9 37.0
Free cash flow (INR mn)
Year to March FY12 FY13 FY14E FY15E
Net profit 6,014 7,254 8,539 10,290
Add : Non cash charge 895 1,064 1,197 1,304
Depreciation 456 562 647 743
Others 439 502 550 561
Gross cash flow 6,908 8,318 9,737 11,594
Less: Changes in WC 6,053 7,160 36 3,803
Operating cash flow 855 1,158 9,700 7,791
Less: Capex 1,283 1,225 1,232 1,510
Free cash flow (428) (67) 8,468 6,281
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Titan Industries
Top 10 holdings
Perc. Holding Perc. Holding
Jhunjhunwal Rakesh Radheys 7.36 Jhunjhunwala Rekha Rakesh 2.00
Matthews International Capital 1.94 T Rowe Price Associates 1.16
Merrill Lynch Capital Market ES 1.06 Vanguard Group Inc 0.67
UTI Asset Management Co Ltd 0.59 Ewart Investments 0.56
SBI Funds Management 0.5 Fidelity Management & Research 0.46
*as per last available data
Insider Trades Reporting Data Acquired / Seller B/S Qty Traded
No Data Available
*in last one year
Bulk Deals Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Additional Data
Directors Data
Hans Raj Verma Chairman Mr. T.K. Arun Non-Executive, Non-Independent Director
Mr.Ishaat Hussain Director Mr.N.N.Tata Non-Executive, Non-Independent Director
Mr. Bhaskar Bhat Managing Director Mr. T.K.Balaji Non-Executive, Independent Director
Dr. C.G.Krishnadas Nair Non-Executive, Independent Director Ms. Vinita Bali Non-Executive, Independent Director
Ms. Hema Ravichandar Non-Executive, Independent Director Mrs. Ireena Vittal Non-Executive, Independent Director
Prof. Das Narayandas Non-Executive, Independent Director Mr. N.S. Palaniappan Non-Executive, Non-Independent
Auditors - Deloitte Haskins & Sells
*as per last annual report
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14 Edelweiss Securities Limited
Company Absolute
reco
Relative
reco
Relative
risk
Company Absolute
reco
Relative
reco
Relative
Risk
Future Retail HOLD SU H Jubilant Foodworks HOLD SP M
Shoppers Stop BUY SP L Titan Industries BUY SO L
RATING & INTERPRETATION
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING
Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING
Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return
Page 15
15 Edelweiss Securities Limited
Titan Industries
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: [email protected]
Vikas Khemani Head Institutional Equities [email protected] +91 22 2286 4206
Nischal Maheshwari Co-Head Institutional Equities & Head Research [email protected] +91 22 4063 5476
Nirav Sheth Head Sales [email protected] +91 22 4040 7499
Coverage group(s) of stocks by primary analyst(s): Retail
Future Retail, Jubilant Foodworks, Shoppers Stop, Titan Industries
Distribution of Ratings / Market Cap
Edelweiss Research Coverage Universe
Rating Distribution* 127 44 8 180
* 1 stocks under review
Market Cap (INR) 112 54 14
Date Company Title Price (INR) Recos
Recent Research
01-Aug-13 Shoppers
Stop
Like-to-like sales resurgence
boosts show;
Result Update
360 Buy
23-Jul-13 Retail Gold on lease is back;
EdelFlash
27-Jun-13 Titan
Industries
Well equipped to ride the
rough weather; Visit Note
226 Buy
> 50bn Between 10bn and 50 bn < 10bn
Buy Hold Reduce Total
Rating Interpretation
Buy appreciate more than 15% over a 12-month period
Hold appreciate up to 15% over a 12-month period
Reduce depreciate more than 5% over a 12-month period
Rating Expected to
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16 Edelweiss Securities Limited
Retail
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Titan Industries
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