31 January 2013
3QFY13 Results Update |
Sector: Retail
Titan Industries
BSE Sensex
20,005
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
S&P CNX
6,056
TTAN IN
887.8
259.0/4.9
314/190
-6/8/18
CMP: INR275
TP: INR320
Buy
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
34.2
12.7
24.0
0.9
27.2
9.6
18.6
1.1
22.0
7.3
14.4
1.4
2013E 2014E 2015E
101.8
9.7
7.1
8.0
20.1
21.7
42.3
58.3
30.0
125.7
12.1
9.0
10.1
25.8
28.7
35.2
54.1
30.0
152.8
15.1
11.1
12.5
23.8
37.4
33.4
50.8
30.0
Mixed performance:
Titan Industries (TTAN) reported mixed performance
for 3QFY13. Sales grew 23% to INR29.8b, in line with est of INR29.8b. EBITDA
margin declined 20bp to 8.3%, lower than our estimate of 10.2%. EBITDA
grew 20% to INR2.47b (est of INR3.04b) while Adj. PAT grew 24% to INR2.03b
(est of INR2.14b). Watch segment disappointed, dragging down profitability.
Jewelry volumes up 12%; Watch volumes muted:
Jewelry sales grew 27% to
INR25.1b, EBIT grew 30% to INR2.4b and EBIT margin expanded 20bp to 9.8%.
The contribution of studded jewelry declined from 32% in 2QFY13 to 22%, as
TTAN withdrew its discount offer on diamond jewelry in 3Q (it has been
restored in 4Q). Jewelry volume growth rebounded to 12%. Watch sales grew
10.6% (4% volume growth) and EBIT margin declined 40bp to 12.1%.
Change in gold lease norms a threat to Jewelry margins:
Tightening of the
gold lease credit period by MMTC from 180 days to 90 days has resulted in
TTAN shifting to domestic banks, which continue to provide 180 days' lease,
though at higher cost, leading to a 30bp impact on margins. TTAN is
representing with RBI to seek direct gold import under 180 days lease. If RBI
does not relent, TTAN will forego the direct import route and continue with
domestic banks, resulting in a 30bp impact on jewelry margins.
Cutting estimates:
We conservatively assume that RBI will not accede to
TTAN's representations. Our EBITDA estimates for FY14 and FY15 are cut by
4.5-6% as a result. The impact at the PAT level is 2.5-3.5%, as we also adjust
other income numbers. We now model 20bp uptick in EBITDA margin against
our earlier estimate of 80bp expansion.
Maintain Buy:
The stock trades at 27.2x FY14E and 22x FY15E EPS.
Notwithstanding the near-term challenges posed by the government's policy
actions and regulatory uncertainty around the lease period for direct gold
import, we believe that the long-term branded jewelry story remains intact.
Being the undisputed leader, TTAN is in a sweet spot to capitalize the same.
We maintain Buy with a target price of INR320 (26x FY15E EPS; lower multiple
to model regulatory overhang around lease rate).
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +9122 3982 5404
Sreekanth P.V.S.
(Sreekanth.P@MotilalOswal.com); +9122 3029 5120
Investors are advised to refer through disclosures made at the end of the Research Report.

Titan Industries
Jewelry: Volumes up 12%; share of studded jewelry declines to 22%
Jewelry sales grew 27% to INR25.1b, EBIT grew 30% to INR2.4b, and EBIT margin
expanded 20bp to 9.8%. Like-to-like margins would have declined after factoring
in the impact of excise duty in the base quarter.
Jewelry volume growth rebounded to 12%, led by the festive season, a low base
and store expansion. TTAN added 9 Tanishq stores and 49ksf of retail space in
3QFY13. However, we estimate volume decline in like-to-like stores.
The plan to add 200ksf of space is intact, but could get delayed by one quarter -
TTAN might achieve the target in 1QFY14 instead of 4QFY13. The management
believes it will be able to add at least 150ksf in FY13 - it has added 110ksf in
9MFY13. We have modeled 150ksf in our estimates.
The contribution of studded jewelry declined from 32% in 2QFY13 to 22%, as TTAN
withdrew its discount offer on diamond jewelry in 3Q (it has been restored in
4Q). The management has guided 27% contribution of studded jewelry in FY13.
Like-to-like sales growth was 10% (12% in 2Q) for Tanishq and 12% (-8% in 2Q) for
GoldPlus.
Regulatory issues
1. Gold lease period:
Tightening of the gold lease credit period by MMTC from
180 days to 90 days has resulted in TTAN shifting to domestic banks, which
continue to provide 180 days' lease, though at higher cost, leading to a 30bp
impact on margins. TTAN is representing with RBI to seek direct gold import
under 180 days lease. If RBI does not relent, TTAN will forego the direct import
route and continue with domestic banks, resulting in a 30bp impact on jewelry
margins. It will sacrifice margins but maintain working capital efficiency.
2. Gold lease rate:
RBI's KUB Rao Committee had recommended linking of gold
lease rate to base rate. If accepted, this can disrupt TTAN's business model.
While all the industry participants have given their suggestions and challenged
the rationality of this move, if it were to be implemented, TTAN will shift to
direct gold import even with 90 days lease period. Jewelry EBIT margin will
not decline in this scenario but working capital and free cash generation will
be adversely impacted.
1QFY12
20,400
3,154
24.2
16,471
73.3
775
44.0
2,106
480
15.4
15.2
1,661
143.4
10.1
(36)
2QFY12
21,141
4,174
16.1
16,315
44.7
652
16.3
2,245
672
-13.2
16.1
1,587
54.6
9.7
(14)
3QFY12
24,632
3,831
17.2
19,859
25.6
942
69.1
2,436
480
-20.2
12.5
1,904
26.9
9.6
51
4QFY12
23,055
4,138
27.0
17,997
32.2
920
16.8
2,310
534
722.8
12.9
1,823
69.9
10.1
(47)
1QFY13
2QFY13
3QFY13
22,258
22,931
30,370
3,607
4,718
4,235
14.4
13.0
10.6
17,755
17,239
25,152
7.8
5.7
26.7
896
974
983
15.7
49.4
4.3
2,293
2,653
2,994
504
547
512
4.9
-18.7
6.5
14.0
11.6
12.1
1,806
2,150
2,466
8.7
35.5
29.5
10.2
12.5
9.8
(16)
(43)
17
Source: Company, MOSL
2
Jewelry sales shine; margins up 20bp (INR m)
Total Sales
Watches
YoY Growth (%)
Jewellery
YoY Growth (%)
Others
YoY Growth (%)
Total EBIT
Watches
YoY Growth (%)
EBIT Margin (%)
Jewellery
YoY Growth (%)
EBIT Margin (%)
Others
31 January 2013

Titan Industries
Volume growth in double digits after 4 quarters of decline
Source: Company, MOSL
Volume growth in Jewellery bounces back to 12%
Volume Gr (%)
Customer Gr (%)
Studded Share (%)
Sales Gr (%)
4QFY12
(7)
4
32
31
FY12
5
14
26
41
1QFY13
(21)
(2)
25
8
2QFY13
3QFY13
(11)
12
7
12
32
22
6
27
Source: Company, MOSL
Tanishq LTL sales grow 10%
Jewellery
Sales Gr (%)
LTL Growth (%)
Stores
3QFY12
Tanishq GoldPlus
33
24
26
13
129
32
4QFY12
Tanishq GoldPlus
38
36
25
23
129
32
1QFY13
Tanishq GoldPlus
11
(1)
3
(8)
132
32
2QFY13
3QFY13
Tanishq GoldPlus
Tanishq GoldPlus
19
(2)
19
6
12
(8)
10
12
134
32
145
31
Source: Company, MOSL
Watches: Volumes muted; profitability remains under pressure
Watch sales increased 10.6% YoY to INR4.2b in 3QFY13; volumes were up 4% (4% in
2Q).
World of Titan, Fastrack and Helios posted like-to-like sales growth of 11%, 31%
and 18%, respectively.
EBIT margin declined 40bp YoY to 12.1% due to (1) excise duty hike, (2) INR
depreciation, (3) higher input costs, and (4) investments in A&P and retail store
expansion. The management noted that Watch margins have largely bottomed
out.
Watch volume growth remains a drag; aggressive store expansion
3QFY12
Sales
LTL
Stores
Gr % Gr %
(x)
10
8
326
470
18
21
77
21
85
17
11
4QFY12
Sales
LTL
Stores
Gr % Gr %
(x)
18
14
332
390
(9)
25
95
16
102
27
14
1QFY13
Sales
LTL
Stores
Gr % Gr %
(x)
14
9
337
177
19
25
86
12
110
14
(3)
2QFY13
3QFY13
Sales
LTL
Stores Sales
LTL Stores
Gr % Gr %
(x)
Gr % Gr %
(x)
4
(1)
348
14
11
354
127
19
32
85
18
41
71
7
122
97
31
132
13
11
4
4
Source: Company, MOSL
World of Titan
Helios
Fastrack
Sales Gr
%
Volume Gr
%
31 January 2013
3

Titan Industries
Eyewear sales up 21%
Others reported 4.3% increase in sales and EBIT of INR17m.
Eyewear reported 21% sales growth, with like-to-like sales growth of 14%, down
from 19% growth in 2QFY13.
Titan Eye+ LTL sales growth in double digits
Stores
Sales Gr %
LTL Gr %
1QFY13
209
20
1
2QFY13
209
32
19
3QFY13
215
21
14
Source: Company, MOSL
Valuation and view: Cutting estimates; maintain Buy
While volume growth recovered in Jewelry, the decline in the share of studded
jewelry to 22% was a disappointment. Gross margins in studded jewelry are 3.5x
the gross margins in plain gold jewelry.
The management noted in the conference call that in January 2013, demand has
not been as robust as the festive demand of 3Q.
We expect delayed margin recovery in Watches though the improving volume
growth trend augurs well for margins. We are positive on new businesses like
Fastrack and Titan accessories given the nascent market and lack of viable brands
in these segments.
We conservatively assume that RBI will not give 180 days lease credit permission
to TTAN and model the impact of higher lease. As a result, our EBITDA estimates
for FY14 and FY15 are cut by 4.5-6%. Impact at PAT level is 2.5-3.5%, as we also
adjust other income numbers. We now forecast 20bp uptick in EBITDA margin
against our earlier estimate of 80bp expansion.
The stock currently trades at 27.2x FY14E and 22x FY15E EPS. Notwithstanding the
near-term challenges posed by the government's policy actions and regulatory
uncertainty around lease period for direct gold import, we believe the long-term
branded jewelry story remains intact. TTAN, being the undisputed leader, is in a
sweet spot to benefit from the same.
Net cash balance sheet (consistent free cash generation), robust capital efficiency
ratios (60%+ RoCE) and leadership position in its core categories justify the
premium multiple, in our view. We maintain
Buy
with a target price of INR320 (26x
FY15E EPS; lower multiple to model regulatory overhang around lease rate).
Better than expected traction in new stores can provide upside risks to our
estimates while any sharp decline in gold price, reversal of consumer sentiment
and decision around linking of gold lease rate to base rate are key concerns.
Change in estimates: Lower Jewellery margins to factor in shift in gold leasing to domestic banks
FY13E
102,300
10,200
8.3
Old
New
FY14E
FY15E
FY13E
FY14E
FY15E
126,600 154,100 101,763 125,718 152,791
12,900 15,800
9,659 12,112 15,056
10.5
12.8
8.0
10.1
12.5
Change (%)
FY13E
FY14E
FY15E
-0.5
-0.7
-0.8
-5.3
-6.1
-4.7
-3.5
-3.4
-2.5
Source: Company, MOSL
Sales
EBITDA
EPS (INR)
31 January 2013
4

Titan Industries
Titan Industries: an investment profile
Company description
Titan Industries (TTAN) is one of India's largest specialty
retailers. It is the market leader in Watches and a
pioneer in Branded Jewelry. The company's economy
segment watch, Sonata is the largest selling watch in
the country. TTAN entered the branded jewelry segment
in 1996 with the
Tanishq
brand and remains the largest
player in this segment.
Key investment risks
Sharp decline in Gold prices can impact profitability.
Reversal in consumer sentiment.
Recent developments
During the quarter, TTAN added 9 stores in Jewellery
and 6 stores in Eyewear.
Valuation and view
Key investment arguments
TTAN is the leader in the organized segment of the
domestic watch industry, with ~60% market share.
The branded watch retailing segment is likely to
report strong growth, given that 60% of the watch
retailing industry is dominated by the unorganized
segment.
Tanishq, TTAN's branded jewelry brand, is the largest
player in the INR70b branded jewelry market in
India. Branded jewelry accounts for less than 10%
of the total jewelry market in India and is expected
to report 40% CAGR over the next five years.
Operating margins are likely to expand, as Titan
benefits from rising share of Studded
Jewellery.Eyewear is expected to breakeven in
4QFY13, thus driving margins further.
Net cash balance sheet (consistent free cash
generation), robust capital efficiency ratios (60%+
RoCE) and leadership position in its core categories
justify the premium multiple, in our view.
We maintain
Buy
with a target price of INR320 (26x
FY15E EPS; lower multiple to model regulatory
overhang around lease rate).
Sector view
We believe specialty retailers are better placed to
ward off the impact of the current slowdown. Ability
to generate cash flows to adequately finance
expansion plans puts them in a better position.
Comparative valuations
Titan
Inds.
P/E (x)
EV/EBITDA (x)
EV/Sales (x)
P/BV (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
34.2
27.2
24.0
14.4
2.3
1.8
12.7
9.6
Shoppers
Stop
157.1
62.5
36.9
23.0
1.6
1.3
5.2
4.9
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY13
FY14
Consensus
Forecast
Variation
(%)
Target Price and Recommendation
Current
Price (INR)
275
Target
Price (INR)
320
Upside
(%)
16.4
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Dec-12
Promoter
Domestic Inst
Foreign
Others
31 January 2013
53.1
3.1
18.3
25.5
Sep-12
53.1
3.4
17.3
26.2
Dec-11
53.5
5.9
13.2
27.5
5

Titan Industries
Financials and valuations
31 January 2013
6

Titan Industries
N O T E S
31 January 2013
7

Disclosures
This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement
to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates
or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt
or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or its
affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or
employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . MOSt or any of its affiliates
or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness
for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision
based on this report or for any necessary explanation of its contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest
Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
Titan Industries
No
No
No
No
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
For U.K.
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States.
In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state
laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein
are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended
(the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into
a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within
the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer,
MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst
account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore
to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Nihar Oza
Kadambari Balachandran
Email: niharoza.sg@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact: (+65) 68189232
Contact: (+65) 68189233 / 65249115
Office address: 21 (Suite 31), 16 Collyer Quay, Singapore 049318
Motilal Oswal Securities Ltd
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com