titan industries limited - finac

8/7/2019 Titan Industries Limited - Finac

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CONTENTS

1.0 STRATEGY ANALYSIS ................................................................................32.0 ACCOUNTING ANALYSIS ............................................................................43.0 FINANCIAL ANALYSIS .................................................................................4

3.1 Balance Sheet Analysis ........................................................................53.2 Profit and Loss Statement Analysis .....................................................53.3 Profitability Ratios ...............................................................................63.4 Liquidity Ratios ...................................................................................73.5 Solvency Ratios ....................................................................................83.6 Capital Market Ratios ..........................................................................83.7 Cash Ratios ..........................................................................................9

4.0 CONCLUSIONS ..............................................................................................95.0 ANNEXURES .................................................................................................12


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Titan Industries is Indias leading producer and retailer of watches and jewellery, and is

credited with changing the face of the Indian watch as well as the jewellery industry. The

watch division with a domestic market share of over 70% of the organized market is clearly

the market leader.

Titan Industries Ltd. operates in Leisure & Personal Goods Retail segment and its area of

operations includes Asia Pacific, Middle East and the UK. The company has three product

divisions: watches, jewellery and eyewear. Titan Industries key strategy is to explore new

consumer segments, introduce innovative new products, and rapidly increase its retail

network to drive sales growth. The Company strongly focuses on building a highly

differentiated brand positioning in the marketplace. The business is also rationalizing its cost

structure and leveraging lower rentals prevalent in the market today. The companys

acquisition of 3 subsidiary companies under its scheme of amalgamation (Samrat Holdings

Ltd, Questar Investments Ltd and Titan Holdings Ltd) has been approved by jurisdictional

High courts with effect from March 30, 2009.

All the aforesaid businesses are consumer led businesses and the retail network expansion is

carried out through franchisees at the front end. This is an efficient way to expand rather than

having Company owned/managed showrooms. The relationships have to be actively managed

to pre-empt shifting of loyalties of these franchisees to other product category brands/brands

within these categories. During 2009, the Company raised a total of Rs. 249.20 crores from

borrowings. As a result, the average cost of borrowings for the year was 10.97% as against

9.24% in the previous year and this has increased the liabilities.

Watch segment sales grew by 3.6% to Rs. 908.49 crores, while jewellery sales went up by


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Eyewear Division which is in the process of establishing a national network of world class

optical stores incurred a loss of Rs. 32.69 crores, in its first full year of operations. Injewellery business, gold prices continue to be high and volatile and therefore will affect

consumer demand. The company is looking at effective cost management and better working

capital management to stave off these risks.

The following have been our observations regarding the accounting policies of the company:

During the year 2008-09, the Company revised the estimated useful life of Furniture& Fixtures from 15 years to 5 years which resulted in an additional depreciation

charge of Rs. 7.90 crores. This however does not seems to affect the P&L statement

for the financial year 08-09 much as the overall income from the exceptional items in

the statement has decreased for this period.

The company changed the Inventory valuation method of gold from weighted averageto FIFO to facilitate appropriate presentation of the financial statements with effect

from April 1, 2009. However this would not affect the analysis that we would be

doing as the last considered financial statement for this study is of the year ending on

31st march 2009.

Apart from the above two changes there does not seems to be a major change in the

accounting policy or unusual accounting treatment evident from the reports.


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The increase in the operating profit and it being a high percentage of the Profit after Tax

shows a high quality of earning. The same point is consolidated by the high Cash RealizationRatio.

We hereby use the horizontal and vertical analysis methods to derive meaning from the

balance sheet and the profit and loss account and then use the ratio analysis methods to gain

greater insight into the company operations.

has been carried by observing common sized balance sheet and

horizontal analysis. The following are the key interpretations:

The company has paid back a major portion of its borrowings in 2008-09, which isevident from common sized balance sheet as total debts have gone down. The same is

substantiated by reduced growth in reserves and surplus in the same fiscal year

(horizontal analysis).

The company is moving on to the franchisee model of operations and the same isindicated by the continuously decreasing increase in fixed assets in common sized

balance sheet and horizontal analysis.

Investments had risen in 2007-08 due to amalgamation of 3 subsidiaries andinvestment rose from Rs 27.02 crores in 2006-07 to Rs 47.39 crores in 2008-09 (the

same is indicated in common sized balance sheet)

The growth in companys inventory levels has followed a decreasing trend (horizontalanalysis). The fact can be attributed to stabilization of jewellery business. Moreover,

global recessionary forces led to a demand slump in 2008-09 and this can also be the

reason of company maintaining a not so high inventory level in that period.

3.2 Analyzing the profit and loss statement of the company, its sales have increased over the


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In 2007-08, company had an unprecedented other income of Rs 84.69 crores whichwas due to writing back of provisions Rs 79 cr in the fiscal year (this is indicated bycapitaline database, but companys annual report does not make a mention of it).

Talking about financial ratios, we group them under profitability, liquidity, solvency, capital

market and cash ratios and carry out the analysis on the basis of the group.

The fixed asset turnover ratio(FATOR) has shown a

constantly increasing trend,

emphasizing the fact that the

company has been able to

better utilize its assets. The

other major point that this

suggests is that the company

has been moving to a

franchisee model where the

fixed assets have not really

increased, but the sales have

continued to grow. The totalasset turnover (ATOR) ratio

has also increased, not as

drastically as the FATOR, but


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The Debt to equity ratio hasbeen decreasing constantly and

this is consistent with the

company becoming more

mature. The same holds true

for the liability to equity ratio.

The interest cover ratio talksabout the ability of the

company to pay off its interest

to the creditors. This value for

titan industries has been

increasing over the past fouryears, showing the increasing

strength of the company to

clear off its short term

liabilities to the creditors.

Price to Earnings Ratio: As isindicated by the Price to

Earnings ratios there has been

an increase in 2006-07 over

2005-06, then a decrease in

2007-08 and again an

increase in 2008-09. The dip

i 2007 08


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Dividend Yield: The dividend given by the company also follows a similar trend asabove which indicates less dividend in 2007-08 as compared to other years.

If we look at the difference between net profit and the cash flow from operations, thecurrent year has seen the quality of earnings improve significantly.

A Cash realization ratio of greater than 1 is another indicator of the quality ofearnings. The income has not relied on non-cash sources this shows conservative

valuation policy.

The operating cash flowcover for interest

expense is consistently

greater than 3. This

indicates that the

company is unlikely to

default on its interest

payments even under

relatively adverse

operating conditions.

This is a positive

indication for the

companys creditors.


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second hand market and gives them the competitive advantage. Titan Industries stock has

been resilient to the recessionary time due to sustained growth in sales and profit and strong

focus on domestic sector.

Since jewellery accounts for the lions share of the revenues, about 68% one major concern is

the fluctuation in the prices of gold and high procurement costs which in turn also affect

consumer demand. The biggest challenge in the business would be to maintain the high

service standards expected by consumers in an organized service industry. Therefore it has to

invest further in developing the best talent through training and other developmental

initiatives. The company has high cost of the captive manufacturing unit (Hosur) due to high

wages. Measures like lean manufacturing and outsourcing become critical in watch

manufacturing. The company also identifies the potential threat from the mobile phones and

has started promoting watches as a personal accessory.

Company's options in terms of price attractiveness to customers are very limited as they are

obtained from the international markets. This gives the local players an advantage in price

discounts.

Earnings Per Share (EPS) and P/E ratio: Together they measure the performanceof the company and its investments. A high P/E ratio indicates stock markets

confidence in a companys future growth. Current ratio of 38 indicates healthy

performance.

Debt to Equity Ratio: Over five years there has been a consistent decrease in theratio from 2.6 to 0.32 indicating that company has been able to finance its operations

internally and has been at bay from using excessive debt financing. However a low


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prices, fluctuation in demand along with the companys acquisition of three

subsidiaries, it seems a good prospect for long term investment.

This exercise was an extensive learning activity. Firstly, we computed and understood the

importance of managerial financial statements in analyzing companies. Secondly, we

developed an understanding of how to view the available financial information from

perspectives of different stakeholders. Investors, suppliers, clients and other differentstakeholders analyze a companys financial situation after looking at different set of ratios.

Thus, the set of ratios selected to analyze a company is very crucial. Thirdly, to project a

companys future prospects, it is imperative to look at past data and develop trends (also

taking into account market externalities). And lastly, we also developed an understanding of

where to look for financial data (i.e. stock exchanges websites, companies annual reports,analyst reports, industry profiles, projection reports etc). All in all, it was a tremendous

learning exercise.


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Balance Sheet from Capital Line


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Managerial Balance Sheet


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Common Sized Balance Sheet


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Horizontal Analysis of Balance Sheet


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PnL Statement of Capital Line

Year Latest 2009 2008 2007 2006 2005 2004

No. of Companies 11 3 6 6 6 6 6

INCOME :

Sales Turnover 4,279.44 4,078.83 3,378.43 2,447.40 1,712.11 1,332.15 1,121.74

Excise Duty 61.73 48.79 95.55 98.52 79.85 50 80.83

Net Sales 4,217.71 4,030.04 3,282.88 2,348.88 1,632.26 1,282.15 1,040.91

Other Income 50.13 36 100.19 54.36 101.43 27.5 28.28

Stock Adjustments 205.57 182.23 319.05 252.75 76.45 82.88 33.36

Total Income 4,473.41 4,248.27 3,702.12 2,655.99 1,810.14 1,392.53 1,102.55

EXPENDITURE :

Raw Materials 3,049.95 2,939.65 2,529.12 1,700.38 1,043.17 805.04 644.35

Power & Fuel Cost 22.57 18.14 20.44 17.46 15.7 15.12 13.98

Employee Cost 344.83 253.09 293.66 251.61 209.16 174.21 159.63

Other Manufacturing Expenses 99.89 84.95 66.88 61.62 44.16 35.72 27.53

Selling and Administration Expenses 535.61 505.89 380.48 320.68 235.41 208.26 145.05

Miscellaneous Expenses 161.78 128.68 210.87 227.57 120.6 128.45 117.08

Less: Pre-operative Expenses Capitalised 0.09 0.09 0.02 0.52 0.89 0.49 0.81

Total Expenditure 4,214.54 3,930.31 3,501.43 2,578.80 1,667.31 1,366.31 1,106.81

Operating Profit 258.87 317.96 200.69 77.19 142.83 26.22 -4.26

Interest 155.02 30.9 142.62 133.49 126.68 118.53 116.18

Gross Profit 103.85 287.06 58.07 -56.3 16.15 -92.31 -120.44

Depreciation 53.14 44.65 39.07 34.67 29.41 29.04 35.64


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Profit Before Tax 50.71 242.41 19 -90.97 -13.26 -121.35 -156.08

Tax 76.45 75.96 43.6 40.21 17.66 14.9 9.64

Deferred Tax -6.48 -6.54 7.26 -2.47 -5.65 -5.69 -6.14

Reported Net Profit -24.38 168.16 -36.52 -132.84 -29.08 -130.56 -159.58

Extraordinary Items -1.99 -1.96 -19.55 10.87 29.02 -29.08 -19.03

Adjusted Net Profit -22.39 170.12 -16.97 -143.71 -58.1 -101.48 -140.55

Adjst. below Net Profit -0.45 0 0 -0.2 0 0 127.39

P & L Balance brought forward -771.58 221.35 -865.51 -688.65 -632.63 -485.18 -442.36

Statutory Appropriations 0 0 0 0 0 0 0

Appropriations 168.87 166.48 63.61 43.82 26.94 16.89 10.63

P & L Balance carried down -965.28 223.03 -965.64 -865.51 -688.65 -632.63 -485.18

Dividend 46.02 44.39 36.24 23.61 14.2 9.34 4.96

Preference Dividend 0 0 0 0.39 2.72 2.81 3.32


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Managerial PnL Statement


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Common sized PnL Statement


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Horizontal Analysis of PnL


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Cash Flow Statement


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Horizontal Analysis of Cash Flow Statement


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Financial Ratios


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Debt to Equity Ratio

titan industries limited - finac

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