Titan Industries Ltd - An Analysis

Recommendation : BUY

January 23, 2010.

Remarkable points from Annual Report 2009-10

Both Watches and Jewellery segments benefited from a good wedding season in the first quarter of 2009-10. Retail sales were extremely good for watches post October 2009. Tanishq ran a successful promotion the ‘Queen of Diamonds’ and the new Eyewear business had an extremely impactful activation in the first half of the year and a very successful advertising campaign in the last quarter of the year.

The year witnessed expansion of the Company’s retail network with a net addition of 52 stores (81,267sq.ft.) across Watches, Jewellery and Eyewear businesses. As on 31st March 2010, the Company has a total of 539 stores, with over 6,85,000 sq. ft of retail space, delivering a retail turnover of Rs. 4,400 crores.

To support the increase in sales growth, the Company has established one more assembly unit on 29th March 2010, at an excise duty free zone in Uttarakhand State, with a production capacity of 5.0 million watches per annum having a total built up area of 4,500 sq mtrs.

The international markets for watches presented a mixed picture, with markets such as Vietnam, Saudi Arabia and Qatar displaying good growth, but countries such as UAE and Singapore remained sluggish. The export of precision engineered components during the year was impacted due to the global meltdown.

Consequent to the adoption of hedge accounting of gold, for a more accurate reflection of the operational performance and appropriate presentation of the financial statements, the Company has adopted First-in-First-Out (FIFO) method of valuation of gold from April 1, 2009 as against weighted average method adopted upto March 31, 2009. This change has resulted in a higher profit before taxes of Rs. 13.41 crores during the year ended March 31, 2010.

Titan Mechatronics Ltd ceased to be a subsidiary of the Company on 30th March 2010 consequent to the Company divesting its entire shareholding in the subsidiary.

As at 31st March 2010, the Company has the following subsidiaries:

1) Titan TimeProducts Ltd, Goa

2) Tanishq (India) Ltd, Bangalore

3) Titan Properties Ltd, Hosur

The two key Tanishq relationship programs, “The Golden Harvest Scheme” (GHS) and Anuttara, saw a surge in the enrollment base. The GHS, an installment based Jewellery buying initiative, saw record enrollments leading to 15% of its retail sale coming from the GHS. The new enrollments of 09-10 are expected to increase the sales contribution of GHS to 25% of 2010-11 retail sales. The Anuttara loyalty program saw the member base rise to over 4, 50,000 members during the year.

Titan Industries focused on consolidating its eyewear business, enhancing profitability and building brand awareness and appeal. It has expanded its retail chain to 82 stores and is present in 41 towns as on March 2010. Brand awareness has significantly improved and consumers today recognize Titan Eye+ a preferred destination for eyewear. The brand will continue to innovate and meet the latent needs of the middle and upper middle Indian consumer.

The eyewear industry continues to be largely unorganized with few national/regional optical chains. Competitive activity has increased and larger players are beginning to intensify their efforts to grow the market. It is estimated that this industry is currently growing at over 15% per annum.

During the year 2009-10, a total of 417 new recruits were added in the system (Company and Agency employees), with a net addition of 197 employees, most of them in the retail, and a few to support the opening up of a new Assembly plant at Pantnagar. As on 31st March 2010, your Company had 4353 employees on Company rolls, out of which 2630 were in the factories, 800 in retail, about 578 in sales and marketing while the rest 345 were in support functions.

Financial Analysis

Debt/Equity of Titan Industries Limited as of now has improved at 0.075 vs 0.100 as in March 2010 quarter, indicating an almost debt-free company. Reserves and Surplus have increased by 31% at 888.26 crores in the September quarter from 679.99 crores in the March quarter this year. Capital Employed has increased by 26% to 999.97 crores in September quarter from 794.3 crores in March quarter due to increasing Working Capital as a result of increased Cash component.


Income from Operations have increased by 34% to 1535.97 crores in the September quarter from 1146.8 crores in the corresponding quarter last year. Operating Profit Margins for the September quarter this year is at 11% as compared to 9% for the same quarter last year. The breakdown of Quarterly Financial Statements is given below.

If we compare things annually, Income from Operations in 2010 increased 22% to 4677.15 crores from 3832.63 crores in 2009. Operating Profit Margins were same at 8% for the financial year ending March 2010 as compared to 8% for the financial year ending March 2009. The breakdown of Annual Financial Statements is given below.

Return over Capital Employed (ROCE) for the current year ending six months is coming out to be 28% as compared to an ROCE of 49% in the whole financial year of 2009-10, which is excellent.

Cash Conversion Cycle (CCC) for the current year ending six months is coming out to be 17 days as compared to 34 days for the whole financial year ending March 2010, which is excellent.

Total Assets per Share of the company is coming out to be Rs. 227.45. Earning per Share of the company for the past four quarters is coming out to be Rs. 75.64. Current Price of the scrip is Rs. 3502. Trailing P/E of the company is coming out to be 46.29.

Equity Section is quiet impressed with the reduction in Cash Conversion Cycle of Titan Industries Ltd. to 17 days. Also, Titan Industries Ltd. is expected to do an ROCE of 56% this current financial year. Equity Section notes the significant reduction in the Capital Employed for the jewellery section in Titan Industries Ltd.. Equity Section believes that the growth momentum in the jewellery section and Titan Eye + will continue as more and more areas in India are covered. In view of the above operational improvements and eyeing the huge future growth potential, Equity Section issues a BUY recommendation for Titan Industries Ltd.

Discalimer : Equity Section holds this scrip. Titan Industries Ltd. is a part of Equity Section WatchList.