1 0 23042011 fuller ton titan industries 21st april 2011

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TITAN INDUSTRIES LTD. HOLD

IL Industries Ltd (TIL) is the pioneer in the specialty retail market in India with leadership

osition in watches, jewellery and eyewear retail segments. It was established in 1985 as a joint

enture between the Tata Group and the Tamil Nadu Industrial Development Corporation

TIDCO) to manufacture watches.

Dominance in watch segment: - TIL is the undisputed leader in Indias branded watch

segment with a 65% market share. The company is the fifth largest watch manufacturer in the

world & has a well balanced portfolio that runs the gamut from lower end brands to the luxury

segments.

Shift towards branded jewellery gaining momentum: -TIL is the largest jewellery retailer in

India and the only player with a pan-India footprint. Its jewellery division contributes approx.

75% to total revenues, led by the popular Tanishq brand of products.

Eyewear A strong growth opportunity: - TIL owns the largest optical retail chain in India

with 122 stores and is looking to more than double its footprint by FY13. This segment of

business has very high potential to grow, reason being nearly 30% of the total population

requires vision correction after certain age and TIL being one the most reputed players in this

field has a great chance to grow robustly.

Increased discretionary spending to drive growth: - Discretionary spending in India will

receive a significant boost primarily driven by expectation of robust economic growth. Higher

disposable income, rapid rise in organized retail in the domestic market and improving

economic conditions to drive the growth for the company.

ased on FY13E consolidated numbers and assigning a PE multiple of 32, the fair value per

hare for the company works out to Rs 4,512

Recommendations 20% p.a.

Buy Expected Returns from 10 to 20% p.a.

Hold Expected Returns from 0 % to 10% p.a.

Reduce Expected Returns from 0 % to 10% p.a. with possible downs

Sell Returns < 0 %

Financial SnapshotProjections (Rs Mn) FY09A FY10A FY11E FY12E FY13E

Revenue 39,110 47,791 63,161 78,272 94,757

Y-o-Y Growth % 28% 22% 32% 24% 21%

EBIDTA 3,092 4,087 6,463 8,615 9,874

Y-o-Y Growth % 20% 32% 58% 33% 15%

PAT 1,639 2,513 4,046 5,438 6,247

Y-o-Y Growth % 11% 53% 61% 34% 15%

EPS Rs 37 57 91 123 141

BVPS Rs 126 165 245 357 486EBIDTA % 8% 9% 10% 11% 10%

NPM % 4% 5% 6% 7% 7%

ROE % 29% 34% 37% 34% 29%

PER x 44.5 33.1 28.8

P/B Ratio 16.6 11.4 8.3

STOCK DATA

BSE / NSE Code

Bloomberg Code

No. of Shares (Mn)Sensex / Nifty

PRICE DATA

CMP Rs (20th April 2011)

Beta

Market Cap (Rs mn)

52 Week High-low

Average Daily Volume

STOCK RETURN (%)

30D 3M 6M

Titan Industries 17% 17% 28%

Sensex 9% 2% -2%

Nifty 9% 2% -2%

SHARE HOLDING PATTERN (%)

Promoter

Institution

Non Institution

Total

500

TITAN

1947

1 Year Price Performance (Rel. to Sensex)

4

80

120

160

200

240

Sensex Titan


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TIL is the pioneer in

specialty retail markeIndia with leaderposition in watc jewellery and eyretail segments

USINESS PROFILE

L is the pioneer in the specialty retail market in India with leadership position in watches, jewellery and eyewear retail

gments. It was established in 1985 as a joint venture between the Tata Group and the Tamil Nadu Industrial

evelopment Corporation (TIDCO) to manufacture watches. Later, the company diversified into the jewellery (in 1995)

d eyewear (2007) businesses. In FY10, the jewellery segment contributed 75% to total revenues, followed by the

atches (22%), eyewear (2%) and precision engineering (1%) segments.

22%

75%

3%

Segment Reveune FY10

Watches Jewellery Other

L is the worlds fifth largest integrated watch manufacturer with a market share of ~65% in the domestic organized

atch market (customer base of ~80 million). The company has several popular brands in this segment including

tan, Sonata and Fastrack. Further, TIL enjoys ~40% share in the organized jewellery retailing market where the

ompany offers gold and diamond jewellery through its popular brands - Tanishq, Gold Plus and Zoya. TIL also has a

resence in the branded eyewear business. TIL entered the precision engineering business and offers design services

companies operating in industries such as aerospace, automotive, oil exploration & production and machine

uilding and automation business. TILs manufacturing facilities are located in Aurangabad, Dadra, Hardwar, Piparia

nd Rakholi. The company has sales and marketing offices in the US, UK, Russia, China, South Africa and India. The

ompany is headquartered in Hosur, Tamil Nadu.

usiness Division

Watches

Jewellery

Precision Engineering

Eye Wear

TIL is the worlds largest integrated wmanufacturer with a mashare of approx 65% indomestic organized wmarketStore Details as of Q3 FY11

Formats No. Of Stores

Watches

Fastrack- Stores

Fastrack- Kiosks

Helios

342

303

27

10

2

World of Titan

Jewellery 148

Tanishq

Gold Plus

117

29

Zoya 2

Titan Eye+ 122

Total 612

TITAN INDUSTRIES

Time Products

Titan, Sonata, Fastrack,

Xylys

Jewellery

Tanishq, Goldplus, Zoya

PrecisionEngineering

Automotive &Aerospace

Eyewear

Titan Eye+


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USINESS PROFILE

Watches: - Domestic watch market offers significant opportunity

TIL is the undisputed leader in Indias branded watch segment with a 65% market share. The company is the fifth largest

atch manufacturer in the world and has a well balanced product portfolio that runs the gamut from lower end brands

onata: Rs 275+) to the luxury segment (TIL Xylys: Rs 100,000+). While India s watch market is estimated to grow at 8%,

L has been able to achieve growth at a much faster pace of 20%, largely as consumers up trade from the unorganized

egment. Further, the companys pan-India distribution network, innovative product designs, and the low penetration of

atches in India should help sustain its strong growth trajectory.

The total retail value of the Indian watch market is pegged at Rs.31 bn. The market is under-penetrated with only 27%

wnership. In 2009-10, as many as 46 million watches were sold in India. Since FY06, the watch market has grown at a

AGR of 5.7%. There is a huge opportunity to target first time, replacement and multiple watch buyers.In value terms, the

omestic watch market is dominated by the low-end segment, which accounts for ~43% of the total market share,

ollowed by mid-upper (33%), premium (13%) and mass (11%) segments. However, the mass segment (i.e. watches priced

elow (Rs 400) accounts for nearly 45% in volume sales and represents the largest consumer group.

27%

73%

Low Penetration

Watc h ow ne rs N on ow ne rs

50%

15%

20%

15%

Titan's watch sales by value

Titan Sonata Fastrack Xylys,othe rs

35%

45%

15%5%

Titan's watch sales by volume

Titan Sonata Fastrack Xylys,othe

uccessful product positioning

We believe TIL has done commendably well in terms of positioning its products at every price point across the watch

egment. Its lower-end Sonatarange (sub-Rs 1,000) is aimed at consumers graduating from the unorganized segment,hile Fastrackis positioned as a youth brand that finds appeal among teens and the younger age group. the premium/luxury segment, the company has TILand the Swiss-made Xylyswhich competes with high-end Swissatches.

he mass-market Sonatarange remains the biggest brand in the TILs watch segment with a 45% volume share and a5% value share; TIL contributes 35% of volumes and 50% of value with the balance coming from Fastrack. We notehat Sonatawas the fastest growing brand post the economic recovery. Now, however, all of the companys brands areoing well with Fastracktaking the lead, in turn improving the product mix.

Strong brand awarenand presence in the mmarket and premisegment

Indian watch markunderpenetrated only 27% ownership

Indian market extremely sensitive


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TITANS BRAND POSITIONING

TIL has offerings across price points in the economy, mid and premium price bands. On top of this, the company also has

brands targeting the youth, women and children.

Economy: Its Sonata brand is positioned in the economy segment starting from Rs. 275. The Sonata brand competes

against HMT and Maxima. It is positioned as a formal wear brand. Its Fastrack brand is also an economy brand targeting

youth and positioned as a sporty brand.

Mid: TIL is positioned at the mid price point from Rs.1000+ level upto the premium segment where Xylys takes over. TIL

watches compete against Japanese companies: Citizen and Seiko. TIL is positioned mostly in the formal/classic wear

egment. Swatch, Espirit, DKNY, Giordano and Tommy Hilfiger also compete in this price point but are positioned as

Fashion and Sporty brands.

Premium: Xylys and Nebula are premium brands positioned in the Rs.10000+ range. Xylys competes with Raymond Weil

and Tissot. All three of them are formal wear brands. Nebula is at an even higher price point and is positioned as a formal

wear brand. In the formal wear category it competes with Rado, Omega and Longines. TAG Heuer, Hugo Boss and Dior are

also competitors in the same price band. However, all these brands are positioned as fashion/sports wear brands.

Zoop: TILs brand targeting children. It is designed to convert customers into loyal brand users at an earlier stage thus

enhancing customer lifetime value.

Fastrack: TILs brand of watches, eyewear and personal accessories targeting the youth. It retails under independent

tores and watches are sold in TIL showrooms and multi-brand outlets.

TIL is the licensed vendor of Hugo Boss, Tommy Hilfiger and French connection.

Presence in business segments

Leader in respecbusiness segments


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USINESS PROFILE CONTD

wellery: - Glittering prospects

dias jewellery market is pegged at more than Rs.1000 bn. Out of this, gold jewellery accounts for 80% of the market and

amond studded jewellery is 15% of the market. As much as 90% of the Indian jewellery market is in the unbranded or

norganized sector. Amongst the organized players, TIL has the first mover advantage in this business with 40% market

are of the organized segment. It started retailing jewellery in 1996. It now has three brands or formats: Gold Plus, Tanishq

nd Zoya. The urban market is huge with 60% of the market still being urban centric. However, in itself rural and semi-

ban opportunity is huge at more than Rs.400 bn.

10%

90%

Branded v/sUnbranded

Branded Unbranded

0

5000

10000

15000

20000

2500030000

35000

40000

IncomeRs(mn)

Jewellery

40%

60%

Sales by Value

Rural , semi Urban Urban

Leading jeweller in India with strong brand in Tanishq

TIL is the largest jewellery retailer in India with 117 Tanishq boutiques, 29 Gold Plus stores and 2 Zoya stores. About 55% of

hese outlets are either managed or co-owned by the company, while 45% are franchisee based. Tanishq remains one of

he strongest jewellery brands in the market with a 40% share in the branded segment and over 1.5mn customers (FY10).

The company now plans to introduce large-formats stores under the Tanishq brand, ranging from 20,000sq ft to 25,000sq

t (since these enjoy a higher stock turnover and hence higher sales per square foot than smaller outlets). In FY11, the

ompany intends to add 30,000sq ft of Tanishq space, taking the total to 330,000sq ft. We expect three new stores in FY12

with a 10% increase in area.

Apart from a presence in 75 towns through Tanishq, TIL also services semi-urban and rural areas through its Gold Plus

hain of 29 stores. This product range is targeted at value-conscious consumers buying traditional jewellery. The market is

estimated to be in the region of Rs 300bn and is largely fragmented, with under-karating still widely prevalent. The

ompany hopes to leverage on the Tata brand name to inspire customer trust in the quality and purity of its products.

However, since the segment is highly sensitive to gold prices, the management has chosen not to focus unduly on the

ame until clarity emerges on prices. Apart from Tanishq and Gold Plus, TIL also has two Zoya stores, which are high-end

ewellery outlets targeted at a niche customer profile though it has no plans to expand the same at present. TIL sells a mix

of studded jewellery, plain gold jewellery and gold coins. The contribution from diamond studded jewellery stands at 30%

of the segments sales, Gold coins constitute ~1012% of the jewellery segment sales.

Titan is the larg

jewellery retailerIndia with 1Tanishq boutiques,Gold Plus stores andZoya stores

Tanishq is one of tstrongest jewellebrands in the markwith a 40% share

the branded segme

90% of the Indjewellery market ithe unbranded unorganized secto


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BUSINESS PROFILE

Eyewear: - Strong growth opportunityTIL ventured into the prescription eyewear business in 2007 and emerged as the largest optical retail chain in India (122

as of December 2010). The company sells products such as frames, sunglasses, contact lenses, ready readers and other

related accessories under three in-house brands - Titan, Eye+ and Dash. According to the management, the in-house

brands account for ~60% of the total eyewear revenues while the rest comes from third-party brands (such as Gucci, D&G,

Armani BOSS Es rit Daniel Swarovski and Mont Blanc .

84

267

Eyewear market in India in mn(population)

Use rs Untappe d Marke t

Companys eyewear strategy:-

The companys eyewear strategy is to concentrate on high margin areas: design, marketing, lens manufacturing,

retailing and servicing the customers. Whereas Lens and frame distribution, frame manufacturing and finishing and

assembly have been outsourced.

Design &Marketing

Frames &Lens Mfg

WholesaleDistribution

Lensfinishing &

Assembly

Reatail ,Services

OUTSOURCE

Inhouse Process (High margin Areas):- Design, marketing, lensmanufacturing, retailing and servicing the customers.

Outsources Process :- Lens and frame distribution, frame manufacturing

and finishing and assembly

Largest optical chain in India (122 December 2010)

Companys eyewestrategy is tconcentrate on higmargin areas

0

20

40

60

80

100

120

140

FY07 FY08 FY09 FY10 FY11

NumberofStores

Titan Eyeware Stores


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-

Precision engineeunlikely to msignificant contributioprofits

Current significant juin gold prices can lead significant slowdown jewellery demand indomestic market

International players affect the TILs busines

Dominance by unbranjewellery

BUSINESS PROFILE

recision Engineering: - Unlikely to be a focus areaIL has a presence in the B2B segment through its precision engineering business where it has forged strong client

elationships with international customers in the automotive, aerospace and medical industries. The company currently

ocuses on precision components, dashboard instruments and subsystems.

TIL has benefitted from Indias growth as a manufacturing base; the sluggishness in export markets (US, Europe) is

mpeding growth in the segment. The business is also highly capital intensive and has been facing some over-capacity

sues with weak order flows as well as a dearth of skilled engineers being the biggest hindrances. We do not expect the

usiness to make any significant contribution to the companys profitability.

isks & Concerns

Volatility in gold prices

Jewellery demand is highly dependent on the movement in gold prices with stable/falling prices leading to an

improvement in jewellery demand and vice versa. The current significant jump in gold prices can lead to a

significant slowdown in jewellery demand in the domestic market and negatively impact our demand forecast.

Increasing competition from international watch players

Several international watch majors such as Tissot, Omega, Rolex Fossil, Calvin Klein, Giordano, Esprit and

Tommy Hilfiger complete directly with TIL primarily in the premium watch category. With growing disposable

income and rising aspirations levels, India presents an attractive market to the foreign premium watch

manufacturers. TIL is highly susceptible to an increase in competition from foreign brands, which can

negatively impact our revenues and margin forecast in the watches segment.

Slower than expected recovery from Economic slowdown

TILs products fall under the discretionary category, which has high correlation with the growth in disposable

income and is highly dependent on the healthy growth of the economy. A slower than expected recovery in

the economy can lead to lower spending on discretionary items (and more on necessities) leading to reduced

volume growth for the company.

Continued dominance of customers on unbranded jewellery

The jewellery market in India is dominated by unorganized players with over 90% of the market share. In the

recent past, TIL has been able to increase its market share by targeting young and educated customers in

metros and Tier I cities with the guarantee on purity of gold and presenting contemporary designs.

Increase in Rent to affect in short term

With robust expansion plans TIL is exposed to rising rental expenses on new stores as well as existing stores

that are on lease. A higher than expected increase in rental expenses can negatively impact the companys

expansion plans, leading to reduced profitability.


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BUSINESS PERFORMANCE

0%

2%

4%

6%

8%

10%

12%

14%

0

5000

10000

15000

20000

25000

Margins(%)

Revenues(Rsmn)

Quarterly Performance

Net Revenue (Rs mn) EBITDA Margins

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000100,000

FY08 FY09 FY10 FY11E FY12E FY13E

Revenue, Operating & PAT Margin

Revenue (Rs Mn) EBIDTA Margin PAT Margin

or Q3FY2011, TIL reported stellar performance, which was in line with street expectations. The company reported top-ne growth of 47% Y-o-Y to Rs 19.55bn, backed by good retail growth across all its brands, retail chains backed by festive

eason demand for the quarter ended December 2010. Revenue performance by the jewellery and watches segments

rew by 50% yoy and 35% Y-o-Y, respectively.

Despite 19% increase in gold price in Q3FY11 over the same period in last year, Tanishq has recorded high sales growth

n both plain and studded jewellery. Tanishq had a successful queen of diamond campaign during the quarter. The new

yewear business has grown its retail presence through Titan Eye+ stores to over 40 towns and introduced many

nnovative products- in frames, lenses and sunglasses.

For Q3FY2011, reported stperformance; it repotop-line growth of 4yoy to Rs 19.55bn

eer Group Comparison

ompaniesRevenue

(Rs. mn)

EBIDTA

Margin (%)

PAT

Margin

(%)

ROE

(%)

P/E

(x)

P/B

(x)

CMP

(Rs.)

FV

(Rs.)

n Industries 60,545 10% 7% 55% 45.2 24.9 4055 10

tanjali Gems 86,353 7% 4% 15% 7.2 1.1 271 10

jesh Exports 207,494.3 2% 1% 22% 10.0 2.2 99.7 1.0

M Figure

TIL is a pioneer in the specialty retail market in India with leadership position in watches, jewellery and eyewear retail

egments. TIL has higher EBITDA margin than its peers driven by strong revenue growth and controlled cost cuttingmeasures undertaken by the firm. Further,well diversified business segments of Titan Industries have helped the

irm to achieve 43% CAGR in its top line. Strong growth in top line coupled with controlled cost of manufacturing

have led the firm to maintain phenomenal ROE of 55% as against 15% of Gitanjali Gems and 22% of Rajesh Exports.

urther, considering managements aggressive expansion plans to open up another 250 stores in the coming 2 to 3 years,

we believe that the company will continue to grow in the years to come.

TIL has higher EBmargin than its

driven by srevenue growthcontrolled cost cumeasures underby the firm


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VALUATIONS

TIL, a market leader in branded jewellery watches and eyewear is well-placed to benefit from rising aspiration values ledby Indias booming economy. We forecast healthy 26% revenue CAGR over FY10-13 driven by store expansion and same-

store sales growth. Rising share of studded jewellery, coupled with rapid growth in its high-margin premium watches,

will drive margin expansion. The stock trades at 44.5x FY11E EPS of Rs 91 and 33.1x FY12E EPS of Rs 123.

Based on FY13E consolidated numbers and assigning a PE multiple of 32, the fair value per share for the

company works out to Rs 4,512.

Financial Analysis and ProjectionsParticulars (Rs Mn) FY09A FY10A FY11E FY12E FY13E

Net Revenue 39,110 47,791 63,161 78,272 94,757

Other Income 273 170 413 446 499

Total Income 39,383 47,962 63,574 78,718 95,257

Operating Expenditure 36,291 43,875 57,112 70,103 85,382

Depreciation 424 607 332 381 402

EBIT 2,669 3,480 6,131 8,234 9,472

EBIT Margin (%) 7% 7% 10% 11% 10%

Interest 288 254 92 117 149

Profit Before Tax 2,381 3,226 6,039 8,117 9,323

Less: Tax 741 713 1,993 2,679 3,077

PAT 1,639 2,513 4,046 5,438 6,247

PAT Margin (%) 4% 5% 6% 7% 7%

ROE (%) 29% 34% 37% 34% 29%

EPS (Rs) 37 57 91 123 141

BVPS (Rs) 126 165 245 357 486

Valuation Ratios (x) FY11E FY12E FY13E

P/E 44.5 33.1 28.8

P/B 16.6 11.4 8.3

Based on Fconsolidated numand assigning amultiple of 32, thvalue per share focompany works out4,512


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April 21, 20


Board of Directors

Director Name Current Position Description

Mr. DebendranathSarangi

ChairmanShri. Mr. Debendranath Sarangi, IAS, Additional Chief Secretary, Government of Tamilnadu and Chairman, TIDCO has beenappointed as Chairman of the Board of Titan Industries Limited with effect from December 06, 2010.

Mr. Noel NavalTata

Non-Independent Non-Executive Director

Mr. Noel Naval Tata is Non-Independent Non-Executive Director of Titan Industries Ltd. He has wide knowledge andexperience in sales and marketing and possesses in retailing business.He holds B.A.(Economics) from University of Sussexand IEP, INSEAD, France.

Mr. V.Parthasarathy

Non-lndependent Non-Executive Director

Mr. V. Parthasarathy is Non-lndependent Non-Executive Director - Representative of TIDCO for Titan Industries Ltd., sinceOctober 20, 2008. Mr. V. Parthasarathy is the Senior General Manager - Finance of Tamilnadu Industrial DevelopmentCorporation Ltd., the co-promoter of the Company.

Mr. Rajeev RanjanNon-ExecutiveChairman

Mr. Rajeev Ranjan, IAS, Principal Secretary, Industries Department, Government of Tamilnadu is Non-Executive Director ofTitan Industries Ltd. He served as Non-Executive Chairman of the Board of the Company till December 06, 2010.

Mr. Ishaat HussainNon-Independent Non-Executive Director

Mr. Ishaat Hussain is Non-Independent Non-Executive Director - Representative of Tata Group for Titan Industries Ltd. He isa Chartered Accountant and is the financial expert. He has varied experience in Finance, Strategy & General Management.

Mr. TirumalaiKumar Balaji


Mr. Tirumalai Kumar Balaji is Non-Executive Independent Director of Titan Industries Limited and is a Industrialist withbusiness experience.

Dr. C. G.Krishnadas Nair


Dr. C. G. Krishnadas Nair is Non-Executive Independent Director of Titan Industries Ltd. He has experience coveringacademia, R&D and industry Retired as Chairman & CEO of Hindustan Aeronautical Limited

Ms. Vinita BaliNon-Independent Non-Executive Director

Ms. Vinita Bali is Non-Executive Independent Director of Titan Industries Ltd. She is presently Chief Executive Officer ofBritannia Industries Ltd. She received her Bachelors degree in Economics from Delhi University and MBA at the JamnalalBajaj Institute of Management Studies. She pursued postgraduate studies in Business and Economics at Michigan StateUniversity. Ms. Vinita Bali is a qualified manager with national and international experience and had held several positionsin Cadbury India and Coca-Cola. She was responsible for worldwide strategy for Coke and was one of the key players inhelping the soft drink giant double its growth rate.

Mr. R.Poornalingam


Mr. R. Poornalingam is Non-Executive Independent Director of Titan Industries Ltd., since March 30, 2009. Mr. R.

Poornalingam is a retired IAS officer and has served in various capacities in State and Central Government. He holds IAS,MA (Economics), B.E, (Electrical) and B.L.

Mrs. HemaRavichandar


Mrs. Hema Ravichandar is Non-Executive Independent Director of the Titan Industries Ltd., since March 30, 2009. Mrs.Hema Ravichandaris a practicing in the field of Human Resource Development andhas served as SeniorVice President &Group Head - Human ResourcesDevelopment of Infosys Technologies Ltd., till July 2005. He is holds B.A. Economics, PostGraduate Diploma in Management, IIM (A).

1 0 23042011 fuller ton titan industries 21st april 2011

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