Stock Review: Titan Industries

On the back of its expansion plans and strong demand outlook, analysts expect Titan's top line and net profit to witness a Compound Annual Growth Rate of 26 per cent and 33 per cent over FY2010-12, respectively.

The company is planning to double its share of the jewellery (three quarters of its sales) market over the next five years to 6 per cent and has recently announced a 108-store expansion. This will increase the store count across divisions to 700 stores.

Given its strengths and growth prospects, brokerages expect an upside of 10-15 per cent from the current stock prices in the near term.

Strong jewellery demand

Titan currently holds 3 per cent share of India's jewellery market and 35 per cent share of the organised market. Analysts believe that robust growth of the jewellery market will enable the company to post a volume growth of 15-20 per cent in the FY10-14 period. The key risk, however, is rising gold prices, which could mar profitability.

Titan adopts the cost-plus percentage model in the jewellery business, implying a higher Ebitda margin in rising gold price scenario and vice versa. Analysts at Emkay Securities believe a higher market share in jewellery segment would result in a 6 per cent upgrade in 2011-12 earnings from

`116 per share to `123 per share. Titan's leadership position enables it to bargain hard with its vendors for bulk discounts, resulting in lower cost structure as compared to the other regional players.

Titan operates 85–90 per cent of its stores through the franchisee model, which provides scalability to its business.

Tapping the mass market

Titan Watches, the watch division of Titan, enjoys more than 65 per cent market share in the organised watch segment. The Indian watches market is expected to grow annually at 12 per cent. Armed with a new collection and strong marketing initiatives, Titan Watches, plans to double the sales of its key watch brand Sonata over the next 34years. Further, Titan Watches will increase its distribution reach in the rural markets, and has priced its new models as low as `275, thereby luring the consumers away from unbranded watches. Of the 13 million watches it sells annually, six million are Sonatas. In another three years, Sonata targets to sell 10 million watches. While buoyant discretionary spending will boost top line growth, higher offtake of high-margin medium/highend watches will result in margin expansion in this segment.

Expanding reach

The other businesses comprising eyewear and precision engineering are still in investment mode and the company plans robust expansions in this space. The company is looking at strengthening its retail presence through Titan Eye+ stores. While traction in eyewear is strong, break-even is expected only in 2012-13.

From 110 stores currently the company intends to add 150 stores by March 2011 and is targeting 300-400 stores in the next two-three years.

The company is also into the manufacturing of lenses. Currently, it's catering only to Titan stores and has a capacity of 10,000 lenses a month.

The company plans to scale up its capacities after it begins contract manufacturing for other players in the eyewear sector.