CMP 326.15

Target Price 365.00

ISIN: INE280A01028

AUGUST 2nd

2014

TITAN COMPANY LIMITED Result Update(PARENT BASIS): Q1 FY15

BUYBUYBUYBUY

Index Details

Stock Data

Sector Other Apparels & Accessories

BSE Code 500114

Face Value 1.00

52wk. High / Low (Rs.) 362.70/203.00

Volume (2wk. Avg. Q.) 112000

Market Cap (Rs. in mn.) 289555.97

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14E FY15E FY16E

Net Sales 109157.90 118982.11 128500.68

EBITDA 11686.30 12814.07 14050.04

Net Profit 7411.40 8319.43 8933.15

EPS 8.35 9.37 10.06

P/E 39.07 34.80 32.41

Shareholding Pattern (%)

1 Year Comparative Graph

TITAN COMPANY LIMITED BSE SENSEX

SYNOPSIS

Titan Company Ltd. is a joint venture between the

Tata group & Tamil Nadu Industrial Development

Corporation in 1984 for manufacturing and

marketing of watches.

During the quarter, revenue falls to Rs.28914.40 mn

against Rs.31076.70 mn in the corresponding

quarter of previous year, a decrease of 6.96%.

PAT declined by 2.86% at Rs. 1772.70 million in

current June quarter compared to Rs. 1824.80

million in the corresponding quarter of the previous

year.

In Q1 FY15, EBIDTA rises 5.87% and stood at Rs.

2997.80 million against Rs. 2831.70 million in the

corresponding period of the previous year.

The Watches business of the Company recorded

healthy growth of 10.4% grew from Rs. 3986.8

million to Rs. 4399.5 million.

The Jewellery business in Q1 was Rs. 23252.7

million as against Rs. 25866.1 million, a decline of

10.1%.

The Company other businesses, Eyewear, precision

Engineering and accessories grew by 3.8% from Rs.

1231.8 million to Rs 1278.3 million this year.

As on 30th June 2014, the Company had 11000

stores, with over 1.48 million sq.ft of retail space.

Net Sales and PAT of the company are expected to

grow at a CAGR of 8% and 7% over 2013 to 2016E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Titan Industries Ltd. 326.15 289555.97 8.35 39.07 11.47 210.00

Rajesh Exports Ltd. 157.65 46547.7 12.18 12.94 1.76 100.00

PC Jeweller Ltd. 128.20 22960.6 19.89 6.45 1.32 15.00

Gitanjali Gems Ltd. 69.10 6780.1 0.00 0.00 0.24 0.00

Analysis & Recommendation - ‘BUY’

Titan Company during Q1 FY15, net profit of Rs. 1772.70 million as against Rs. 1824.80 million in the

corresponding quarter of the previous year. For the 1st quarter of FY15, Operating profit increased by 5.87% to

Rs. 2997.80 million from Rs. 2831.70 million in 1st quarter of FY14.

During the 1st quarter, the company witnessed aggressive expansion of its retail network with an addition of 22

stores across all its businesses. As on 30th June 2014, the Company had 1100 stores, with over 1.48 million sq.ft

of retail space. The Company other businesses, Eyewear, precision Engineering and accessories grew by 3.8%

from Rs. 1231.8 million to Rs 1278.3 million this year. The strength of Company’s brands contributed to sales

growth across all retail formats of watches, jewellery and eyewear. The company continues to invest in strategic

initiatives taking into account of its long term and sustainable growth plans and moves in to new financial year

i.e., 2014-15 with aggressive plans. We expect the company to post a CAGR of 8% and7% in its top-line and

bottom-line respectively. Hence, we recommend ‘BUY’ for ‘Titan Company Limited’ with a target price of

Rs.365.00.

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q1 FY15,

Titan Company is the World’s 5th largest Watch

Manufacturer and 65% market share in organized

watch market and has reported its financial results

for the quarter ended 30th June, 2014.

The company has achieved a turnover of Rs. 28914.40 million for the 1st quarter of the current year 2014-15 as

against Rs. 31076.70 million in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 2997.80 million and increase of 5.87% over corresponding quarter of previous year. In Q1 FY15,

net profit of Rs. 1772.70 million as against Rs. 1824.80 million reported in the corresponding quarter of the

previous year. The company has reported an EPS of Rs. 2.00 for the 1st quarter as against an EPS of Rs. 2.06 in the

corresponding quarter of the previous year.

Rs. million Jun-14 Jun-13 % Change

Net Sales 28914.40 31076.70 (6.96)

PAT 1772.70 1824.80 (2.86)

EPS 2.00 2.06 (2.86)

EBITDA 2997.80 2831.70 5.87

Break up of Expenditure

Segment Revenue

Latest Updates

• Titan Company Ltd has been operating Golden Harvest Scheme and Swarna Nidhi Schemes for its brand

Tanishq for many years now. Through these schemes, lakhs of customers able to acquire precious Tanishq

jewellery for various occasion.

• The Company other businesses, Eyewear, precision Engineering and accessories grew by 3.8% from Rs.

1231.8 million to Rs 1278.3 million this year .

• The company focus on retail network expansion continues – 22 stores (36 k sft) added during the quarter

across divisions.

• Titan Eye Plus continues to grow strongly – buyer growth of 20%.

Particulars Rs. Millions

Q1 FY15 Q1 FY14

Cost of Material Consumed 18104.5 17895.6

Purchase of Stock in Trade 3079.5 4847.3

Advertising 992.5 1046.7

Other expenses 2123.8 2062.9

Employee Benefit Expenses 1461.9 1305.7

Depreciation & Amortization

Expense 243.4 146.1

• During the quarter, the Company has 11000 stores, with over 1.48 million sq.ft of retail space.

• The Watches business of the Company recorded healthy growth of 10.4% grew from Rs. 3986.8 million to Rs.

4399.5 million.

• The Jewellery business in Q1 was Rs. 23252.7 million as against Rs. 25866.1 million, a decline of 10.1%.

• The PBIT from Jewellery segment grew by 7.2%, to Rs.2180.00 in Q1 FY15.

COMPANY PROFILE

Titan Industries Ltd. is the organization that brought about a paradigm shift in the Indian watch market when it

introduced its futuristic quartz technology, complemented by international styling. With India's two most

recognized and loved brands Titan and Tanishq to its credit. The company has reported its change of name of the

Company from Titan Industries Limited to “Titan Company Limited”. Titan Company is the World’s 5th largest

Watch Manufacturer and 65% market share in organized watch market.

The success story began in 1984 with a joint venture between the Tata Group and the Tamil Nadu Industrial

Development Corporation. Presenting Titan quartz watches that sported an international look, Titan Industries

transformed the Indian watch market. After Sonata, a value brand of functionally styled watches at affordable

prices, Titan Company Ltd reached out to the youth segment with Fastrack, its third brand, trendy and chic. The

company has sold 150 million watches world over and manufactures 15 million watches every year. Titan

Company retail chain has 1100 stores strong, as on 30th June, 2014 with a retail area crossing 1.48 mn sq. ft.

nationally for all its brands.

The company has over 406 exclusive ‘World of Titan' showrooms and over 148 Fastrack stores and helios has 45

stores in 21 towns. It also has a large network of over 760 outlets for sales-service centers in 268 towns. Titan

Company is also the largest jewellery retailer in India with over 168 Tanishq stores including 3 Zoya stores in 92

towns and over 33 Gold Plus stores in 33 towns.

Brands

� Titan

� Tanishq

� Fastrack

� Skinn

� Titan Eye +

� Xylys

� Helios

� Sonata

Watches

This division has placed Titan Industries among the world’s largest retail networks and earned the company

the place of fifth largest integrated watch manufacturer in the world. Sonata India’s largest selling watch

brand and fastrack is the largest youth brand. Its products include: TITAN ONE, Helios.

International Brands under licenced include

� Timberland

� Tommy Hilfiger Watches

� Police

� FCUK

Points of Sales

� Exclusive “World of Titan” outlets, “Fastrack” outlets, Multi-brand outlets is “Helios”and “TITAN One”

outlets.

� Large-format stores like Shoppers’ Stop, Lifestyle etc.

� Multi-brand dealers and stores.

Jewellery

The company is a largest jewellery retailer in India. The company has manufacturing facilities in Hosur,

Dehradun and Pantnagar. Three major brands – Tanishq, GoldPlus and Zoya.

� Tanishq offers a premium range of gold jewellery studded with diamonds and precious, semi-precious

stones in various hues in 18 kt and a wide range of plain gold jewellery in 22 kt pure gold and has

distribution network of 165 stores in 91 towns including 2 Zoya stores. Platinum jewellery also forms

part of the product range.

� Zoya offer exquisite, artistically styled masterpieces, studded in diamonds, apart from traditional, fusion

polki and kundan jewellery.

� Gold Plus retails plain gold jewellery has distribution network over 33 stores in 33 towns, offerings with

designs specifically created for the semi urban and rural Indian market and offers unique designs crafted

with diamonds, American diamonds and other precious stones.

Eye wear:

Titan Eye+is a India’s largest retail chain in Eyewear has 300 retail outlets, 108 towns and offers a variety of

differentiated products to the consumer consisting of frames, lenses, contact lenses , sunglasses, and

accessories. Frames are available in both international brands (Levis, Esprit, Hugo Boss etc.) and in-house

brands – Titan, Eye+ and Dash. Lens manufacturing facility at Chikkaballapur, near Bangalore .

International presence

Titan Company has global presence in 31 countries with 2164 outlets covered.

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Million

Balance Sheet as at March 31, 2013 -2016E

FY13A FY14A FY15E FY16E

EQUITY AND LIABILITIES

Shareholders’ Funds:

Share Capital 887.80 887.80 887.80 887.80

Reserves and Surplus 18760.90 24351.80 30926.79 36493.61

A. Net worth 19648.70 25239.60 31814.59 37381.41

Non-Current Liabilities:

Long-term Provisions 629.00 717.60 789.36 852.51

B. Non-Current Liabilities 629.00 717.60 789.36 852.51

Current Liabilities:

Short-term borrowings 0.00 8062.70 8223.95 8306.19

Trade Payables 20972.60 8577.30 6518.75 5736.50

Other Current Liabilities 14573.50 15361.00 15821.83 16138.27

Short Term Provisions 2931.80 3112.00 3236.48 3301.21

C. Current Liabilities 38477.90 35113.00 33801.01 33482.17

Total (A+B+C) 58755.60 61070.20 66404.96 71716.08

ASSETS

Non-Current Assets:

Fixed Assets

i. Tangible Assets 4402.19 5903.44 7379.30 8855.16

ii. Intangible Assets 84.18 58.93 64.23 69.37

iii. Capital work-in-progress 416.62 328.70 345.14 369.29

a) Sub Total Fixed Assets 4903.00 6291.10 7612.23 9134.68

b) Deferred tax assets 80.40 93.50 105.66 121.50

c) Non Current Investments 185.10 265.70 332.13 398.55

d) Long Term Loans and Advances 1722.20 2037.20 2363.15 2693.99

D. Non-Current Assets 6890.70 8687.50 10413.16 12348.72

Current Assets:

a) Inventories 36779.40 38671.90 40450.81 42246.07

b) Trade Receivables 1637.90 1520.20 1596.21 1660.06

c) Cash and Bank Balances 11365.50 8889.30 9788.48 10473.67

d) Short Term Loans and Advances 1986.90 3134.20 3949.09 4738.91

e) Other Current Assets 95.20 167.10 207.20 248.64

E. Current Assets 51864.90 52382.70 55991.79 59367.36

Total (D+E) 58755.60 61070.20 66404.96 71716.08

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 101126.70 109157.90 118982.11 128500.68

Other Income 1007.70 1201.90 1153.82 1199.98

Total Income 102134.40 110359.80 120135.94 129700.66

Expenditure -91020.40 -98673.50 -107321.86 -115650.61

Operating Profit 11114.00 11686.30 12814.07 14050.04

Interest -506.40 -871.10 -1027.90 -1182.08

Gross profit 10607.60 10815.20 11786.17 12867.96

Depreciation -544.90 -655.90 -839.55 -957.09

Profit Before Tax 10062.70 10159.30 10946.62 11910.87

Tax -2810.90 -2747.90 -2627.19 -2977.72

Net Profit 7251.80 7411.40 8319.43 8933.15

Equity capital 887.80 887.80 887.80 887.80

Reserves 18760.90 24351.80 30926.79 36493.61

Face value 1.00 1.00 1.00 1.00

EPS 8.17 8.35 9.37 10.06

Quarterly Profit & Loss Statement for the period of 31st Dec, 2013 to 30th Sep, 2014E

Value(Rs.in.mn) 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14E

Description 3m 3m 3m 3m

Net sales 26757.70 28033.80 28914.40 26601.25

Other income 260.70 255.00 254.00 269.24

Total Income 27018.40 28288.80 29168.40 26870.49

Expenditure -24305.70 -25068.00 -26170.60 -23887.92

Operating profit 2712.70 3220.80 2997.80 2982.57

Interest -273.90 -227.40 -349.70 -321.72

Gross profit 2438.80 2993.40 2648.10 2660.84

Depreciation -156.50 -204.30 -243.40 -248.27

Profit Before Tax 2282.30 2789.10 2404.70 2412.58

Tax -626.60 -724.70 -632.00 -627.27

Net Profit 1655.70 2064.40 1772.70 1785.31

Equity capital 887.80 887.80 887.80 887.80

Face value 1.00 1.00 1.00 1.00

EPS 1.86 2.33 2.00 2.01

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 8.17 8.35 9.37 10.06

EBITDA Margin (%) 10.99 10.71 10.77 10.93

PBT Margin (%) 9.95 9.31 9.20 9.27

PAT Margin (%) 7.17 6.79 6.99 6.95

P/E Ratio (x) 39.93 39.07 34.80 32.41

ROE (%) 36.91 29.36 26.15 23.90

ROCE (%) 59.34 37.06 34.10 32.85

Debt Equity Ratio 0.00 0.32 0.26 0.22

EV/EBITDA (x) 25.03 24.71 22.47 20.45

Book Value (Rs.) 22.13 28.43 35.84 42.11

P/BV 14.74 11.47 9.10 7.75

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 326.15, the stock P/E ratio is at 34.80 x FY15E and 32.41 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.9.37 and Rs.10.06

respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 7% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 22.47 x for FY15E and 20.45 x for FY16E.

� Price to Book Value of the stock is expected to be at 9.10 x and 7.75 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.365.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India is the fifth largest retail destination globally. The Indian retail industry has experienced tremendous

growth over the last decade with a significant shift towards organised retailing format and development taking

place not just in major cities and metros, but also in Tier II and Tier III cities. The overall retail market in India is

likely to reach Rs 47 trillion (US$ 792.84 billion) by FY 17.

As India’s retail industry aggressively expands itself, great demand for real estate is being created. Further, with

the online medium of retail gaining more and more acceptance, there is a tremendous growth opportunity for

retail companies, both domestic and international. Favourable demographics, increasing urbanisation, nuclear

families, rising affluence amid consumers, growing preference for branded products and higher aspirations are

other factors which will drive retail consumption in India. Both organised and unorganised retail are bound not

only to coexist but also achieve rapid and sustained growth in the coming years.

Market Size

The Indian retail market, currently estimated at around US$ 490 billion, is project to grow at a compound annual

growth rate (CAGR) of 6 per cent to reach US$ 865 billion by 2023. Food and grocery is the largest category

within the retail sector with 60 per cent share followed by the apparel and mobile segment.

Organised retail, which constituted seven per cent of total retail in 2011–12 is estimated to grow at a CAGR of 24

per cent and attain 10.2 per cent share of total retail by 2016–17, according to a study titled 'FDI in Retail:

Advantage Farmers' conducted by an industrial body.

India has about one million online retailers – small and large – which sell their products through various e-

commerce portals. The online retail industry in the country touched US$ 12.6 billion in 2013.

Investments

The foreign direct investment (FDI) inflows in single-brand retail trading during the period April 2000 – March

2014 stood at US$ 106.66 million, as per data released by Department of Industrial Policy and Promotion (DIPP).

The Indian online retail industry is on the rise and has attracted a cumulative funding of US$ 1,650.5 million

since 2009. Out of the total funding, 65 per cent has gone to horizontals and 25 per cent to fashion & apparels

including jewellery. Flipkart & Myntra, who are now a single entity (though they will operate differently), have

together garnered 40 per cent of the total funding invested in Indian e-commerce so far, according to Juxt Data.

The following are the key investments and developments in the Indian retail industry:

• Marks and Spencer (M&S) plans to go up to 100 outlets in India within the next two years following a 13

per cent growth in their sales in the Indian market.

• Flipkart.com has recently acquired fashion e-retailer Myntra.com for a sum of around US$ 3 billion. This

deal will help Flipkart garner a larger market share in the e-commerce segment.

• Metro AG plans to increase the number of its wholesale stores in India from 16 to 50 by 2020 and make

the country one of its focus expansion markets.

• Reliance Industries plans to open 2,000 exclusive outlets, Digital Xpress Mini, in FY 15 to sell the

company's telecom services, smartphones, tablets and also accessories of other brands.

• Private equity (PE) firm Texas Pacific Group (TPG) Growth and India's Smile Group will jointly invest US$

100 million to help internet and e-commerce companies build and scale their businesses across the Asia–

Pacific region and West Asia.

• Ilex-London plans to invest around Rs 50 million (US$ 843,397.17) over the next five years to open 10

exclusive stores in India. Stores will have an average size of 500–600 square feet (sq ft), with an

investment of around Rs 5 million (US$ 84,332.95) per store.

Government Initiatives

The Government of India has allowed 100 per cent FDI in Single-Brand Retail Trading (SBRT) and has allowed 51

per cent FDI in Multi-Brand Retail Trading (MBRT). Just recently, the Competition Commission of India (CCI)

approved the proposal of Tesco buying 50 per cent equity in Trent, which is the first-ever FDI proposal in multi-

brand retail trade.

According to the extant policy, foreign retailers investing more than 51 per cent can open outlets across the

country on the condition that 30 per cent of their sourced sales would come from small to medium-sized

domestic enterprises. Further, global chains will now need to invest only 50 per cent of the initial compulsory

investment of US$ 100 million in setting up cold storages and warehouses in India.

The Confederation of All India Traders (CAIT) has signed a Memorandum of Understanding (MoU) with eBay to

train domestic retailers to use the online market space as an additional tool for expanding their business. The

agreement will enable Indian traders to export via eBay to 201 countries and sell at 4,306 Indian locations.

Road Ahead

India remains a largely untapped and unorganised retail market, with several international retail companies yet

to commence operations in the country. India holds a substantial advantage over other emerging retail

destinations owing to its strong domestic consumption and low rate of market penetration by overseas retailers.

India's new middle class is increasingly becoming brand conscious and willing to spend on quality goods, a trend

which is creating numerous business opportunities for mid-range international brands. With political and

economic sentiments already showing signs of improvement, we believe this is the right time for international

retailers to look at India for expansion into the region.

E-commerce is also expected to be the next major area for retail growth in India. E-commerce companies are

increasingly going beyond digital marketing and targeting offline customers as well. With this growth in the e-

commerce industry, online retail is estimated to reach US$ 70 billion by 2020 from US$ 0.6 billion in 2011.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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