Titan Industries LTD - Initiating Coverage - Fairwealth Securities LTD - 10april 2012

Fairwealth Institutional Research Titan Industries Ltd- Initiating Coverage
Titanic Run to slow down
Rating: Sell;
Basic Info
April 10, 2012
CMP: `244;
Target: `220;
Downside: 10%;
Bloomberg Code Market Cap (` mn.) Face Value (`) Book Value (`) EPS (`) Dividend Yield 52 week H/L (`) Avg. Quarterly. Vol (NSE) Listed At Equity capital (` Mn)
TTAN IN 216623 1 11.5 4.9 1.1% 254/154 3471579 BSE,NSE 888
Share Holding Pattern (30 Dec 2011) Promoter FII DII Others Total 53.46 13.14 5.92 27.48 100.00
Titanic run to slow down: Titan had a golden run over FY09-11with earnings growing at 60% CAGR due to increasing demand coupled with higher gold price and margin expansion. Going forward we do not expect this golden run to continue at the same trajectory due to volatile gold prices, declining volume growth, challenging macro environment and increasing competition. We expect the growth to moderate in the coming years and consider a more pragmatic revenue/earnings growth at 25.5%/28.7% CAGR over FY11-14E. Jewellery Division; Sparkle grows fainter: Jewellery division which contributes ~77% to Titans revenues has seen a sparkling growth of 35% CAGR over FY09-11. However the recent upsurge in the gold prices with rising volatility has impacted the demand as was witnessed in Q3FY12 with volumes showing degrowth of 5%. We expect this segment to grow at 28% CAGR over FY11-14E as the volatility in gold prices diminishes and the investor sentiment improves. Watches Division: Diverse product mix catering to all market segments Indias Watch market is estimated to be ~`4-4.2 bn. Titan has 65% market share of the organized Indian watch market. Timex is a distant second to Titan with just 8% market share. Company has segmented the market superbly with very sharp offering for every section right from the `225 Sonata Super Fiber (mass market) to `375000 gold studded Nebula (premium). Company plans to increase its World of Titan stores to 400, Fastback stores to 150 and Helios (multi brand outlets) to ~75 over the next two years from current 326, 85 and 21 respectively Precision Engineering Division turns profitable; Eyewear to breakeven: Precision Engineering is a large and growing market estimated to be ~$32 bn globally. Titans Precision Engineering division has already turned profitable in Q3FY12. Titan currently has 191 Titan Eye+ stores and plans to increase the footprint to 250 stores in the next few years. Eyewear market is a very large, competitive and fragmented largely dominated by the unorganized sector (90%). Titan expects the Eyewear business to breakeven and turn profitable by next year. Accessories business - Transformation into a Total Lifestyle Company: Huge Potential The accessories market in India, which combines men's bag, women's bag, college bags, belts, wallets and such related articles is valued at about `200bn, of which the bags market alone is `40 to 50bn. Titan is aiming to become a youth centric, total lifestyle company with the launch of its accessories (belts, wallets and bags) business. Valuation: We expect Titans revenue and earnings to grow at 25.5% and 28.7% CAGR over FY11-14E due to aggressive expansion plans and increase in the consumer discretionary spend. Company has been cash flow positive over the years with high return ratios. We expect Titan to post 42% ROE and 53% ROCE in FY13E lower than earlier years due to aggressive store roll outs leading to lower asset turns. We Initiate Coverage on Titan with Sell rating and a target price of `220/share based on DCF methodology (assuming WACC of 13%, target D/E ratio of 10% and terminal growth rate of 5%). At our DCF price, stock trades at 26.2x FY13E earnings. (Risks: Stable Gold prices, higher margins, improving macro environment)
Price Performance % 1M Absolute Rel. to Nifty 2 4 3M 39 28 6M 14 9 12M 28 38
1 year price performance

140 130 120 110 100 90 80 70 Apr-11 Jun-11 Dec-11 Sep-11 Oct-11 Aug-11 May-11 Nov-11 Feb-12 Mar-12 Jan-12 Jul-11
Titan
NIFTY
Hitesh Parekh Research Analyst hitesh.parekh@fairwealth.in 022 39244988
Key Financials Revenue (`mn) EBITDA (`mn) EBITDA% Adj. PAT Adj. PAT % Adj. EPS(`) P/E(x) ROE (%)
FY 10A 47764 3950 8.3% 2527 5.3% 2.8 85.7 39.6%
FY 11A 66617 5856 8.8% 4317 6.5% 4.9 50.2 49.3%
FY 12E 89365 7907 8.8% 5975 6.7% 6.7 36.3 46.6%
FY 13E 109315 9838 9.0% 7453 6.8% 8.4 29.1 42.5%
FY 14E 131782 11990 9.1% 9198 7.0% 10.4 23.6 38.8%
FairwealthSecuritiesLtd
April10,20121
Fairwealth Institutional Research Titan Industries Ltd
Number of consuming households to more than double to 94mn by 2020 compared to just 40mn in 2010
Investment Rationale
Demographic change
Indias liberalization strategy is leading to more migration of people towards the urban areas and boosting urban growth leading to a rising middle class, increased savings and investment. Mckinsey estimates the number of consuming households to more than double to 94mn by 2020 compared to just 40mn in 2010. This rising middle class would imply a larger pool of money available for discretionary spending, saving and investment. Relevant consuming households to more than double to 94mn by 2020 from 40 mn in 2010
Wealth Distribution
As the interest for newer financial products increases among the individuals with a lot of structures products coming into the market, physical assets such as real estate. Equipment and gold still contribute a large chunk (50%) of the household savings.Of the US$256 billion (1150 billion rupees) in household savings in India in 2008 approximately $7 billion (315 billion rupees) was known to be held in gold Household savings distribution
April10,20122
Gold Demand By Region

India continues to be the worlds largest gold market and has expanded considerably since its period of liberalization, accounting for 32% of global jewellery and bar and coin demand in 2010 at 963 tonnes. Gold jewellery represented around 75% of total Indian gold demand in 2010, the remainder being accounted for by investment and technology. Demand for gold dropped in 2011 to 932 tonnes due to rising and volatile gold prices.
Gold Demand by region (2010)
Motivation rather than form of purchase- Key FairwealthSecuritiesLtd

In India, categories of demand we observe in other markets are less distinct and demand for jewellery is tied to the investment qualities of gold. To make an absolute distinction between investment and jewellery demand is to misunderstand Indian attitudes, they are often one and the same. The motivation for a jewellery purchase is inextricably linked to value, wealth preservation and growth rather than pure adornment. Motivation, rather than the form of purchase is the key. In the last decade, 75% of gold demand in India has taken the form of jewellery.
April10,20123

Titans stock price has a very high co relation with the gold prices over a long term (since 2000) with an R2 of 0.91.
Strong co-relation: Gold & Titan Stock Price

Titans Jewellery business is the key driver to its revenue and profitability, contributing ~77% of its revenues and 71% of its EBIT in FY11. Titans stock price has a very high co relation with the gold prices over a long term (since 2000) with an R2 of 0.91. Volatility in the gold prices adversely affects the volume offtake. A sharp rise in gold prices results in lower volumes as seen in Q3FY12 (-5%) which would consequently impact the profitability. On the other hand a sharp fall in prices would also impact the profitability due to lower realizations. The ideal scenario would be gold prices go up steadily with low volatility which would support volumes and realization as well. Co-relation between Gold Price & Titan Stock Price 300 TitanStockPrice(Rs) 250 200 150 100 50 0 50 200 400 600 800 1000 1200 1400 1600 1800 2000 GoldPrice(US$/oz) R = 0.912

Volume of gold purchasing will rise by 33% over the next decade to reach 1,200 tonnes. We believe stability in the gold prices with a gradual increase to be the key demand driver for jewellery consumption.
Source: Bloomberg, Fairwealth Institutional Research
India- Golden Future - Stable gold prices to be the key

CMIE forecasts that the volume of gold purchasing will rise by 33% over the next decade to reach 1,200 tonnes. Demand will be driven by rapid GDP growth, urbanization and wealth creation, the emergence of a 64 mn strong middle class, a sustained and potentially rising savings ratio of 30-40% and a deep cultural affinity for gold. Against this positive backdrop, provided that the challenges of evolving tastes and preferences and new investment products can be met, Indias future is a golden one. In 2010, Indian jewellery demand rose 69% year-onyear, resulting in a new annual record total of 746 tonnes. However Jewellery demand fell in 2011 to 567 tonnes as against a rise of 32% in gold prices primarily due to volatile and rising gold prices coupled with depreciating rupee. We believe stability in the gold prices with a gradual increase to be the key demand driver for jewellery consumption. India Gold Jewellery Demand (Volumes) and Gold pricing trends
260 230 200 170 140 110 80 50 20 1800 1600 1400 1200 1000 800 600 400 200
Source: Company, Fairwealth Institutional Research
April10,20124
Dec05 Mar06 Jun06 Sep06 Dec06 Mar07 Jun07 Sep07 Dec07 Mar08 Jun08 Sep08 Dec08 Mar09 Jun09 Sep09 Dec09 Mar10 Jun10 Sep10 Dec10 Mar11 Jun11 Sep11 Dec11
Jewellery Demand(Tonnes)(LHS) Gold Price(US$/oz)(RHS)
Jewellery Segment
Leader in Indian branded jewellery space
Indias Jewellery market is estimated to be around `1-1.5bn. Organized sector accounts for only 10% of this while Titan commands ~45% of the organized branded jewellery space. Company has the first mover advantage as it started retailing jewellery way back in 1995 with the launch of Tanishq, Indias most trusted and fastest growing jewellery brand. Organized vs. Unorganized Share
Organise d 10%
Titan vs. others in organized market
Titan 45% Others 55%
Unorgan ised 90%
Tanishq- Titans flagship brand

Titan launched Tanishq in 1995 and is currently India's fastest growing jewellery brand with a premium range of jewellery, studded with diamonds or coloured gems in 18-karat gold, 22karat pure gold and platinum jewellery storming a market of over 400000 independent jewellers. Apart from Tanishq Titan also has Gold Plus, Catering to smaller towns and rural markets. Zoya the latest launch by Titan focuses on the premium/luxury segment. Company has 129 Tanishq stores, 32 Gold plus and 2 Zoya stores. Tanishq and Gold plus store expansion 140 120 100 80 60 40 20 0 FY 07A FY 08A FY 09A Tanishq FY 10A Gold plus FY 11A 9MFY12
Source: Company, Fairwealth Institutional Research April10,20125
Jewellery Division Sparkle grows fainter

Jewellery division which contributes ~77% to Titans revenues has seen a sparkling growth of 35% CAGR over FY09-11. However the recent upsurge in the gold prices with rising volatility has impacted the demand as was witnessed in Q3FY12 with volumes showing degrowth of 5%. We expect this segment to grow at 28% CAGR over FY11-14E as the volatility in gold prices diminishes and the investor sentiment improves. Jewellery Revenue to grow at 28.3% CAGR over FY11-14E 110000 90000 70000 50000 30000 10000 FY 09A FY 10A FY 11A FY 12E FY 13E FY 14E 36.2% 26.7% 23.2% 21.0% 43.3% 41.7% 50% 40% 30% 20% 10% 0%
Revenues(Rsmn)(LHS)
Growth(%)(RHS)
We expect a marginal improvement in margins and stay in the range of 8.8%-9.3% over the next few years.
Marginal improvement in margins Jewellery segment EBIT margins have increased (150bps) over FY08-11 primarily due to the increasing share of studded jewellery in the product mix. Management plans to increase the share of studded jewellery to 40% over the next few years from current 27%. Margins also improved over the years as the making charges are now linked to the gold prices as against the fixed making charges previously used. As a result of this Titan tends to benefit from increasing gold prices provided the volumes remain the same or increase. This change has resulted in higher operating margins for Titan as against the prior periods and also protects itself from gold price volatility to an extent. We expect a marginal improvement in margins and stay in the range of 8.8%-9.3% over the next few years. We believe margins to improve only marginally as gold prices have risen sharply over the last year (31%) and a simultaneous rise in the diamond prices (14% YTD). Marginal improvement in EBIT margins
Diamond Price Index
180 170 160 150 140 130 120 110 100 Mar11 May10 May11 Mar10 Nov09 Nov10 Nov11 Sep09 Sep10 Sep11 Jan10 Jan11 Jan12 Jul10 Jul11
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 8.3% 7.1% 5.8% 8.8% 9.1% 9.3%
FY 09A
FY 10A
FY 11A
FY 12E
FY 13E
FY 14E

April10,20126

Operating Model
Titan uses 3 types of models for its jewellery stores Company owned (15% of the stores) Management Agent Model (40% of the stores) Franchise owned (45% of the stores) In the company owned model inventory is on the books of Titan as well as all the cost of running the outlet is borne by Titan. In the management agent model, inventory is on the books of Titan while the agent runs and manages the entire outlet. The agent in turn receives a commission or fee (generally as % of sales).In the franchisee owned model inventory risk lies with the franchisee owner which enables the company to make investment with lower capital commitments. Titan Jewellery Stores operating model
Company Owned 15% Franchise owned 45%
Management Agent 40%
Innovative schemes to boost demand

Titan has launched various innovative schemes (Golden Harvest,) promotional activities (discounts, gift vouchers, exhibitions etc.), customer loyalty programs (Anuttara & Anata) in order to create as well as spur demand for gold and diamond jewellery. Golden Harvest Scheme Golden harvest scheme is the most popular scheme launched by Titan. This scheme has received a great response and company currently has 3.5 lac customers under the scheme. Golden harvest program sales contribute ~15-20% of the jewellery sales. At present there are two plans under the Golden Harvest Savings Scheme 1)11+1 Plan 2) 18 Months Plan. In both the plans, the minimum installment value is `.500 and it can increase to any amount as long as it is in multiples of `.500. At the end, with the money which customer has saved he/she can buy 18 Karat diamond studded jewellery or a 22 Karat pure gold jewellery from Tanishq. 11+1 Plan Under this scheme, customers need to invest a fixed amount every month with Tanishq for 11 months. The 12th month installment is paid by Tanishq, after which the customer can buy jewellery at the then prevailing rate from any of the Tanishq shops. To attract customers the scheme offers a one-time bonus of 100% on your monthly installment at the end of the 12month scheme. 18 Months Plan As per this plan customers can invest monthly for 18 months. However there is more flexibility in this plan with respect to the amount to be paid monthly. Customers can change the amount to be paid monthly e.g. if the customer starts with `1000 a month, can change it `3000 next month or `1500 the month after. Customer can use this amount along with the bonus of 130% of monthly installment to buy jewellery from Tanishq.
April10,20127
Golden Harvest Program Scheme Type Customer Pays No of Months Total paid Bonus Total Amount Time Period Advantage 11+1 3000 11 33000 3000 36000 after 12 months Bonus - 100% of monthly installment 18 months 3000 18 54000 3900 57900 after 18 months Flexible deposits every month

Company plans to open 25-30 large format stores every year across India
Gold Plus scheme offers the customers yield of ~15-16% which is quite attractive. Titan also stands to gain from this facility on three counts a) it acts as a good brand building exercise for the company b) helps in funding its working capital requirements c) locks in the customer for future purchases. Titans Gold on lease policy- Hedge against volatile gold prices Titan does not carry gold inventory on their books and thus the whole gold price correction leading to inventory loss is nothing but hyperbole. Titan works on a lease model till the sale is done and merely pays the interest in the interim; any rise in the lease costs however would impact their margins on gold. In 2008 the cost of gold leasing went up to ~7%; the cost is ~33.5% presently. Lease period for Titans Gold on lease scheme was extended to 180 days from 90 days by RBI in 2007 and since then has not come down for the jewelers.With the extension of the maximum lease period from 90 days to 180 days in late 2007, jewellers are now able to cover inventory turns as low as 2x. However, as Titans stock turn is 2.8x it acts as a natural hedge against the gold prices. Large format stores- To gain market share Titans Tanishq brand is planning to open large format stores to increase its market share in `1.2bn market. Company plans to open 25-30 large format stores every year across India and invest in marketing and design innovation in order to increase the market share from about 5% at present. Stores in big cities would be spread across 10,000 square feet and in smaller towns an average area would be around 4,000 square feet. Titan Jewellery store expansion
130 120 110 100 90 80 70 60 50 40 30 20 10 0 FY 07A FY 08A FY 09A FY 10A FY 08A FY 09A
No of Stores
Tanishq
Goldplus
Zoya
April10,20128
Titan Watches: Redefining time

Indian Timewear Industry
Indian Timewear industry is estimated to be at `4-4.2bn. Going ahead the industry is expected to grow at ~12-15%. Watches in India have seen a gradual transformation from a time keeping device to a fashion accessory. This evolution has been ushered by many factors such as changing consumer dynamics, increase in disposable income, growth of organized retail, entry of international brands, etc. However the industry has not been able to achieve the scale or size as per its true potential and is growing at a very modest 8-10% with the penetration levels of just 27%. The industry can grow at a much faster rate given the buoyant economy, increasing incomes and low penetration base. The market is expected to grow faster rate of 12-15% in next few years. A large part of this growth is expected to come from the youth and the premium segment of the consumers. The organized players in this sector control 40% of the volume of the industry while the unorganized market which consists of smuggled watches, cheap imported watches, watches assembled by small unorganized players, watch wholesalers and repairers contribute the rest.By value around 60% of the market is controlled by organized players. Indian Timewear market can also be segmented into three price bands mainly Mass, Mid & Premium.
Indian Watch Market by Volume
Indian Watch Market by Value
Titan has ~65% market share in the organised market
Organised 40% Unorganise d 60%
Unorganise d 40%
Organised 60%
Market Segmentation by Price Segment Price range(`) Volume (in lakh pieces) Value(` Cr) 370 1700 Growth rates Mass <1000 370 1700 5-7% Mid 100110000 86.5 1600 8-10% Premium >10001 2.1 900 15-20%
900
2.1 86.5
1600
Value(Rs Cr) Mass Mid Premium
Volume (in lakh pieces) Mass Mid Premium
April10,20129
Diverse product mix catering to all market segments

Titan has 65% market share of the organized Indian watch market. Timex is a distant second to Titan with just 8% market share. Company has segmented the market beautifully with very sharp offering for every section right from the `225 Sonata Super Fiber (mass market) to `375000 gold studded Nebula (premium). Titan offers a slew of products that cater to the inherent needs of the customers across different segments in the watches market Titan for the mid-premium market, Raga for women, Fastrack for youth, Sonata for value-conscious consumers, Zoop for school children, and Xylys for connoisseurs of Swiss watches. Some of the most notable brands in the divisions portfolio are: Titan Edge - The worlds slimmest watch (at 3.45mm) that epitomizes the philosophy less is more. Titan Raga - a feminine and opulent accessory for today's affluent woman Nebula - watches crafted with solid 18k gold and precious stones Sonata - India's largest selling watch brand to suite the common man's wallet Xylys - a Swiss-made, impeccably designed watch for the connoisseur and new age achiever Fastrack watches created to accessories the trendy youth of today
The watch division also boasts of collections such as Automatic, Heritage, Nebula, Orion, Raga, Zoop and series like Aviator, Octane and WWF.
Titans Brand Positioning
April10,201210
Wide distribution network: Biggest Competitive advantage supporting the brands

Titan watches are sold through a wide and robust retail, distribution and service network which extend across the country. Titans World of Titan network has grown to 326stores. The Company has launched three flagship stores, in Mumbai Delhi and Pune. The Delhi flagship store also has the distinction of being the countrys largest watches store. Titans new multi-brand watches retailing business, Helios, witnessed a good year, with all stores performing well. Helios has been created with the specific objective of developing good and deserving retail space for the rapidly growing premium watches market in India. Company is confident that it will contribute significantly to the development of this market, in a manner that is profitable for the Company. Titan has 21 such multi brand outlets across the country. Fastrack, which is sharply focused on young India, continued to speak the language of the college-going youth. A new Hip-Hop collection of watches was launched during the year. The Fastrack exclusive store network continues to expand, and currently stand at 85 stores. Titan also has strong partnerships with reputed modern departmental stores such as Shoppers Stop, Central, Lifestyle, Westside, Pantaloons and Reliance Retail, which are emerging as attractive new shopping destinations, particularly in larger cities and towns. Companys customer service network, which offers excellent and affordable service to millions of customers, now stand at 829 authorized service points nationwide. Company plans to increase its World of Titan stores to 400, Fastback stores to 150 and Helios (multi brand outlets) to ~75 over the next two years from current 326, 85 and 21 respectively Aggressive Store Expansion
350

NoofStores
311 291 265 236 207
326
300 250 200 150 100 50 0 FY07A FY08A
85 47 10 8 1 24 1 6 21
FY09A
FY10A
FY11A Helios
9MFY12
Worldoftitan
FastTrack
International Operations The firm has its presence in 27 countries, with the latest being Indonesia with 1600 outlets. The overseas market accounts for ~6% of the firm's revenue. Company has presence in several South East Asian and Middle Eastern countries. Titan is also present in far east Asian countries like Malaysia and Vietnam.

April10,201211
Watch Division: Revenues to grow at 17.7% CAGR over FY11-14E We forecast TILs revenues from the watch segment will grow at 17.7% CAGR to `20622 mn in FY10-14E (vs. 13% CAGR in FY08-11) driven by the steady volume growth (10% CAGR in FY11-14E) and rising share of watches from the high value premium segment. Revenues to grow at 17.7% CAGR over FY11-14E
25000 20622 20000
18% CAGR
Rsmn
15000
13% CAGR
8759
12652
10000
17518 15020 9070 10253
5000
0 FY 08A FY 09A FY 10A FY 11A FY 12A FY 13E FY 14E
Source: Company , Fairwealth Institutional Research
Titan- countrys largest watchmaker had last year sold 13.5 million units across all its brands with 4 million sales in Titan, 7 million from Sonata and 2 million from Fastrack. Although Sonata contributes highest in terms of volumes, Titan is the highest contributor in terms of values to the watches segment contributing ~45% of the revenues. Sonata and Fastrack contribute equally to the companys revenues while the rest 5% comes from the luxury and high premium brands like Xylys and others. Watch Division Revenue Break up (FY11) ( Volume Wise) Watch Division Revenue Break up (FY11) ( Value Wise) others 5% Titan 30%
others 4% Fastrack 15%
Fastrack 25%
Titan 45%
Sonata 51%
Sonata 25%
April10,201212
With companys plan to increase the number of Helios stores to more than 50, we expect margins to remain in the range of 14.2% to 14.5% over the next few years.
Margins to remain stable in the range of 14.2%-14.5%

Over the past four years the watch division margins have seen a downward movement but have been above 14% in all the years. During 9MFY12 EBIT margins have been at 14.5% with Q3FY12 registering very low margins of 12.5% primarily due to the increase in input cost and depreciating rupee. Further the management also stated that there is a lot of investment going on in the watch business with Helios and the accessories business. Therefore the margins tend to be short term decretive in the near term. Company invests about `10 mn to set up 1 Helios store. With companys plan to increase the number of Helios stores to more than 50, we expect margins to remain in the range of 14.2% to 14.5% over the next few years. Titan Watch Division Margin Trend 3500 3000 2500 2000 14.6% 14.2% 14.0% 14.3% 14.5% 15.0% 15.2% 15.0% 14.8% 14.6% 14.4% 14.2% 14.0% 13.8% 13.6% 13.4% FY09A FY10A FY11A FY12A FY13E EBIT(RHS)(%) FY14E
1500 1000 500 0
EBIT(LHS)(Rsmn)
Operating Model
Titans Watch business operates on the franchisee owned and company owned model. Company currently has 326 World of Titan stores of which 90% are franchisee owned. 80-85% of the fast track stores are franchisee owned whereas the rest are owned by the company. However in case of Helios currently all the 21 stores are company owned. However management believes that over the years as the store expansion happens most of them will be franchisee owned. The franchisee model helps Titan in reducing the inventory level which in turn helps in reducing the working capital of Titan. Titan is therefore able to aggressively open stores with lower capital commitments.
April10,201213
Other categories:
Indian Eyewear Market Market Size Market Size Growth rate Penetration Replacement Demand `1.5-1.8bn 25-35mn units p.a. 15-20% 25% of those who need correction 3-4 years
Indian Eyewear Market

Indian Eyewear market provides a huge opportunity as 30% of the population typically needs correction. At present there are 84 mn users which is just 25% of the population which needs correction. The prescription Eyewear market is pegged at `1.5-1.8 bn selling 25-35 mn units each year. The prescription eyewear market has been growing at ~15-20% per annum and is expected to sustain at this level for next few years. Further there is huge replacement demand as customers change their eyewear once in 3to 4 years. Urbanization, literacy, penetration of TV & computers, poor eye health due to lifestyles/ improper diet, etc are the main demand drivers of this industry as a whole. Titan Eye- ing Retail expansion Titan currently has 191 Titan Eye+ stores and plans to increase the footprint to 250 by September and 500 in a couple of years. Eyewear market is a very large, competitive and fragmented largely dominated by the unorganized sector (90%). Titan Eye Plus has redefined the way the organized optical retail market in India operates through pioneering concepts such as the open touch-feel-browse format, complete transparency in pricing, Style Sections, free insurance on spectacles etc. Titan Eye Plus has three in house brands Titan, Eye+ and Dash (for children). Titan Eye+ stores also sell a host of international brands of frames. In addition to this Titan Eye Plus also offers lenses, contact lenses and sunglasses. Titan believes it inherent strengths lies in Retailing, lens manufacturing, Design & marketing while it outsources the other processes in the value chain. Titans focus in the Eyewear Value Chain
Titan EYE Plus Store Details

200 180 160 140 120 100 80 60 40 20 0 FY 07A FY 08A FY 09A FY 10A FY 11A 9MFY12
April10,201214
NoofStores
Eyewear to breakeven next year

Since FY06, revenues from the Eyewear business have grown at a CAGR of 64.8% to `1567mn in FY11. The eyewear business is yet to turn profitable as it is in the incubation stage. Titan expects the Eyewear business to breakeven and turn profitable by next year. Titan Eyewear Revenues 1600 1400 1200 1000 800 600 400 200 0 FY06A FY07A FY08A FY09A FY10A FY11A
Precision Engineering Division turns profitable

Precision Engineering is a large and growing market estimated to be ~$32 bn globally. Titans Precision Engineering division has already turned profitable in Q3FY12. With an investment of over $10 million, the setup has four main business units i) Precision Engineering Components & Sub-Assemblies (PECSA) ii) Machine Building & Automation Solutions iii) Tooling Solutions iv) Electronic sub-assemblies Current Position: 3 Segments 3 Streams
Accessories business - Transformation into a Total Lifestyle Company: Huge Potential The accessories market in India, which combines men's bag, women's bag, college bags, belts, wallets and such related articles is valued at about `200bn, of which the bags market alone is `40 to 50bn. Titan is aiming to become a youth centric, total lifestyle company with the launch of its accessories (belts, wallets and bags) business.
April10,201215
Rsmn
Financial Summary
Revenue growth to moderate to 25.5% CAGR over FY11-14E We forecast revenue growth to moderate down to 25.5% CAGR over FY11-14E as the volume growth would be less considering the high base of the last two years especially in the jewellery and the watches segment. In jewellery, last year was an exceptional one with same store growth in Tanishq being at 45%. Further with the rising gold prices first 9 months of FY12 also witnessed above 30% same store growth in the jewellery segment. However as the volatility in the gold prices increased the volume growth deteriorated and fell 5% in Q3FY12 suggesting that the Titanic run might be possibly over. Volume growth in the watch segment also decline in the last quarter to 11% from 18% in Q2FY12. We believe that the demand might have peaked out over the last two years and we might see a moderation in demand over the next few years. We expect the watch and the jewellery segment to grow at 17.7% and 28.3% CAGR over FY11-14E. We believe that the eyewear and PED revenues would grow at more sustainable levels of 30% CAGR over FY11-14E seeing that the high growth of the initial years would be difficult to achieve as the high base catches up. Segmental Growth Trends
70% 60% 50%
We expect the watch and the jewellery segment to grow at 17.7% and 28.3% CAGR over FY11-14E.
Revenue growth to moderate to 25.5% CAGR over FY11-14E
140 120 100 Rsbn 80 60 40 20 0 30 39 48 89 67 109
132
40% 30% 20% 10% 0%
FY08A FY09A FY10A FY11A FY12E FY13E FY14E Revenue

FY 08A
FY 09A Watches
FY 10A
FY 11A Jewellery
FY 12E
FY 13E Others
FY 14E
Format Wise Total Growth
Format Wise same store sales Growth Q3FY12 10% 33% 24% 4.7 times 77% 24% 77% Store World of Titan Tanishq Goldplus Helios Fastrack Zoya LFS Watches Titan Eye+ FY11 14% 41% 13% 50% 32% 49% 42% 47% Q1FY12 8% 70% 49% 12% 70% -16% 26% 26% Q2FY12 16% 31% 49% 10% 72% 45% 24% -19% Q3FY12 8% 26% 13% 18% 21% -1% 26%
Store FY11 World of Titan 22% Tanishq 45% Goldplus 13% Helios >3 times Fastrack 2.4 Times Zoya 49% LFS Watches 65% Titan Eye+ 67%
Q1FY12 11% 79% 51% 5 times 1.3 times -16% 78% 78%
Q2FY12 20% 39% 44% 4 times Doubled 45% 52% 16%
April10,201216
Stable Margins
Titans margins have improved over the past two years primarily due to the improvement in the margins of Jewellery segment which is the highest contributor in companys profitability. Although Titans Gross margins have declined considerably over the last few years to 29% in FY11 from 42% in FY02 as the revenue mix has changed considerably with Jewellery segment share increasing to 77% from 37% in FY02. EBIDTA Margins have improved in the last two years to 8.8% in FY11 from 7.1% in FY09.The recent announcement to allow Titan import gold directly rather than routing it thorough the banks or state run agencies would help in reducing the operating costs of the company. Going forward, we expect EBIDTA margins to be in the range of 8.8-9.1% over the next two years. The recent announcement to allow Titan import gold directly rather than routing it thorough the banks or state run agencies would help in reducing the operating costs of the company. Going forward, we expect EBIDTA margins to be in the range of 8.8-9.1% over the next two years.
Revenue mix is key to Titans profitability as there is a wide variation in the margin profile of the various segments. Jewellery which is the highest contributor to Titans revenues mix is a low margin business and hence it affects the profitability of the company. Watch division has the highest margins while the Eyewear segment is yet to turn profitable. But management believes once the Eyewear segment turns profitable margins would be the same as in the watches segment. Although Titan is seeing good growth in the newer business and the watch division we expect Jewellery to be the key revenue driver with contribution in the range of 79 81% over the next few years. Titans jewellery business margins have improved over the last 3 years to 8.3% from 5.8% in FY09 as the share of the studded jewellery has increased over these years. Management expects this share to increase further to 40% from 26% in the next few years which augurs well for the margins in the longer term. However in the short term we expect margins to remain in the range of ~9% as the volatility in the gold prices and lower volumes will have an adverse effect on the margins. The watch division which has higher margins is also expected to see a pressure on the margins and stay in the range of 14.2-14.5% over the next few years. The watch segment saw a fall in its margins in Q3FY12 as the depreciating rupee resulted in an increase in the key input prices. Further the management is in the investment phase for Helios which also has an impact on the margins. Therefore we believe margins to be short term decretive.
Titan EBIDTA & EBIDTA Margin Trend

13000
Segment Wise Margin Trend

10% 9% 8% 12% 7% 6% 10% -10% 8% -15% 6% 4% 2% 0% FY 09A FY 10A FY 11A Watches FY 12E FY 13E FY 14E Others(RHS) -20% -25% -30% -5% 16% 14% 5% 0%
8.3%
11000 9000 7000 5000 3000
8.8%
8.8%
9.0%
9.1%
7.1%
11990 9838 7907 5856 2745 3950

FY 10A FY 11A FY 12E FY 13E FY 14E
5% 4% 3% 2% 1% 0%
1000 FY 09A
EBIDTA(Rsmn)(LHS)
EBIDTA Margin(%)(RHS)
Jewellery
April10,201217
Modest Profit growth

Overall we expect modest profit growth in Titans profitability at 28.7% CAGR over FY11-14E (vs. 37% CAGR over FY08-11). A reasonable growth in the top line coupled with stable margins over the next few years would lead to a modest growth in its bottom line over the next few years. PAT & PAT Growth trend EPS & EPS Growth Trend 8.8 70.9% 6.0 51.2% 4.3 2.5 1.7 -1.6%
FY 09A FY 10A FY 11A FY 12E FY 13E FY 14E 80% 70% 12 10 60% 50% 40% 8
10 9 8 7 6 5 4 3 2 1 0
71.9% 57.5%
80% 70% 60%
7.3
38.8%
6
50% 40%
38.4% 22.7% 20.7%
30% 20% 10% 2 0% -10% 0 FY 09A FY 10A FY 11A FY 12E FY 13E FY 14E 4
22.7% 5.8% 1.8
20.7%
30% 20%
2.8
4.8
6.7
8.3
10.0
10% 0%
Adjusted PAT(Rsbn)(LHS)
Growth(%)(RHS)
EPS(Rs)(LHS)
Growth(%)(RHS)
Aggressive store roll outs to lower Return Ratios

Titans return ratios have seen an improvement in the last few years due to better asset returns, improvement in the profitability margins and good cash generation. However we believe that the return ratios would be lower in the next few years as the company has planned aggressive store expansion plans. This would lower the asset turnover thereby preventing an improvement in the return ratios. Return Ratio Trends
70% 60% 50% 40% 30% 20% 10% 0% FY 09A FY 10A FY 11A Adj. ROE% FY 12E ROCE% FY 13E FY 14E
49% 40% 34%
47%
42%
39%
32%
43%
58%
58%
53%
48%
April10,201218
Valuation:
Going forward, we believe growth, while healthy, will moderate on the very high base of the past 2 years. We expect Titans revenue and earnings to grow at 25.5% and 28.7% CAGR over FY11-14E due to aggressive expansion plans and increase in the consumer discretionary spend. Company has been cash flow positive over the years with high return ratios. We expect Titan to post 42%ROE and 53% ROCE in FY13E lower than the previous years due to aggressive store roll outs leading to lower asset turns. The possibility for significant positive surprises appears limited. Given the stocks good run-up, +28% and +155% in the last 1 and 2 years respectively (outperforming the broad market by ~38% and ~157% respectively), we Initiate Coverage on Titan with Sell rating and a target price of `220/share based on DCF methodology (assuming WACC of 13%, target D/E ratio of 10% and terminal growth rate of 5%). At our DCF price, stock trades at 26.2x FY13E earnings.
Year End(`mn) Sales Growth EBIDTA Growth EBIDTA% DEP Tax FCI WCI FCFF DF PV
FY12E 89365 34.1% 7907 35.0% 8.8% 448 28.2% -1508 -1385 2911 1.00 2911
FY13E 109315 22.3% 9838 24.4% 9.0% 526 29.0% -1522 -2072 3544 0.89 3137 74932 5% 110403 185334 195606 888 220
FY14E 131782 20.6% 11990 21.9% 9.1% 602 29.0% -1335 -2376 4977 0.78 3900
FY15E 158139 20.0% 14549 21% 9.2% 1017 29.0% -1581 -1423 7620 0.69 5285
FY16E 189766 20.0% 17648 21% 9.3% 949 29.0% -1518 -1328 9959 0.61 6114
FY17E 225822 19.0% 21001 19% 9.3% 1129 29.0% -1581 -1355 12303 0.54 6685
FY18E 266470 18.0% 25048 19% 9.4% 1332 29.0% -1865 -1599 14706 0.48 7074
FY19E 311770 17.0% 29306 17% 9.4% 1559 29.0% -2182 -1559 17518 0.43 7458
FY20E 361653 16.0% 34357 17% 9.5% 1808 29.0% -2532 -1808 20578 0.38 7755
FY21E 415901 15.0% 39926 16% 9.6% 2080 29.0% -2911 -2080 23960 0.33 7993
FY22E 478286 15.0% 46394 16% 9.7% 2391 29.0% -3348 -2391 27894 0.30 8236
FY23E 550029 15.0% 53353 15% 9.7% 2750 29.0% -3850 -2750 32078 0.26 8384
Total PV Terminal Growth rate Terminal Value Enterprise Value Equity Value No of Shares(mn) Value Per share
1 Year Forward P/E band
400 350 300 250 200 150
42x 35x 28x 21x
Mar-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13
WACC Rm Rf Beta Cost of Equity
13.0% 15% 8% 0.79 13.5% Terminal Growth rate

100 50 0
(WACC)
12.0% 13.0% 14.0%
3.0% 221 193 172
4.0% 237 205 181
5.0% 258 220 192
Source: Fairwealth Institutional Research
April10,201219
Key Risks
Upside Risks
Stable Gold prices: Gold price volatility has an adverse impact on Titans business as it affects the volume growth. Stable gold prices could lead to an increase in the demand thereby increasing the volumes and revenues. Higher margins: Better than expected revenue mix and higher margins could lead to an increase in the profitability of Titan. Improving macro environment: An improvement in the macro environment could also lead to potential increased spending by the consumers on discretionary items.
Downside Risks
Regulatory changes and taxation policies: Any adverse policy changes with respect to regulations and taxes like customs duty, excise duty could have an impact on Titan. Increasing competition and continued dominance of unorganized sector: Titans Tanishq and Gold plus now face a lot of competition from the organized players in the market. Also continued dominance by the unorganized sector which constitutes 90% of the market share could hurt Titan.
April10,201220
Titan Timeline 1984 Conceived 1987 Launch of Titan Watches 1993 Europe Foray 1994 Timex JV 1996 Tanishq 1998 Sonata Launch 2003 Fastrack 2005 Precision Engineering(PED) 2006 Goldplus 2007 Eyewear 2008 Zoya 2009 Helios 2010 Fastrack Accessories
Company Background
Titan Industries 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, Titan Industries is the fifth largest integrated watch manufacturer in the world. With a license for premium fashion watches of global brands, Titan Industries repeated its pioneering act and brought international brands into Indian market. Tommy Hilfiger and Hugo Boss, as well as the Swiss made watch Xylys owe their presence in Indian market to Titan Industries. Entering the largely fragmented Indian jewellery market with no known brands in 1995, Titan Industries launched Tanishq, Indias most trusted and fastest growing jewellery brand. Gold Plus, the later addition, focuses on the preferences of semi-urban and rural India. Completing the jewellery portfolio is Zoya, the latest retail chain in the luxury segment. Titan Industries has also made its foray into eyewear, launching Fastrack eyewear and sunglasses, as well as prescription eyewear. The organization has leveraged its manufacturing competencies and branched into precision engineering products and machine building. Titan Brand Positioning Segment Luxury Premium Mid Market Watches Xylys Titan Zoop Fastrack Sonata Jewellery Zoya Tanishq Tanishq Eyewear
Titan Fastrack Eye+
Mass Market
Gold Plus
Titan Revenue Mix

Others 4% Watches 19%
Others Watches 4% 16%
FY11
Jewellery 77%
FY14E
Jewellery 80%
Titan EBIT Mix

Others 3%
Watches 32%
Others 1% Watches 23%
FY11
Jewellery 71%
FY14E
Jewellery 76%
April10,201221
Titan Strong Management Profile

Bhaskar Bhat- Managing Director Mr. Bhat assumed the position of Managing Director of Titan Industries on 1st April 2002. Since 1983, he has been associated with the Tata Watch Project later to become Titan Watches Ltd., and now Titan Industries Ltd. At Titan, he dealt with Sales & Marketing, HR, International Business and various general managerial assignments. S Subramaniam- CFO Mr. S Subramaniam is the Chief Financial Officer for Titan Industries and has over 25 yrs of experience in Finance and Business roles. Prior to joining Titan, he was the CFO for the Telecom vertical of the Essar Group, responsible for Finance Strategy, working on M&As and on improving operational performance of the Group Companies. He has also held senior positions with ITC, BPL Mobile, Mannai Corporation, Doha, etc. Harish Bhat - COO - Time Products Division Mr. Harish Bhat leads the watches business of Titan. Earlier, he was COO of the Jewellery Division. Harish is a member of the Tata Administrative Service (T.A.S.). During his tenure with the Tata group, he held several senior portfolios. He is currently Secretary General of the All India Federation of Horological Industries C K Venkataraman- COO - Jewellery Division Mr. Venkataraman has headed the Jewellery Division since January 2005. He is a post graduate diploma holder in Management from IIM Ahmedabad. He joined Titan Industries in 1990, and worked in the Advertising and Marketing functions before becoming the Head of Sales & Marketing for the Titan brand in 2003. S Ravi Kant- COO - Eyewear Business & Executive Vice President Corporate Communications Mr. Ravi Kant has a Masters in Business Management from FMS Delhi and joined Titan in 1988 in Marketing, from HCL. Currently Ravi pursues excellence in everything to do with the eyewear industry, as COO of the Eyewear Business. He also handles the additional responsibility of Corporate Communications for the Company. Kailasanathan N- COO Precision Engineering Division Mr. Kailasanathan, graduated in Statistics from the University of Bombay and subsequently attained several other scholarly achievements. He has vast experience in the IT field, and has been involved in several ERP implementations. He is currently the COO of Precision Engineering Division. Ronnie Talati- Vice President and Business Head Fastrack & New Brands Mr. Talati is a B.Com LLB from the Bombay University. He is a sports and fitness enthusiast and joined Tata Press in 1976. Ten years later, with Titan Industries, Mr. Talati as GM Finance was largely responsible for setting up the Finance Department. In 2005, he headed the new business unit to target youth thus Fastrack came into existence, he is also responsible for the Large Format Store retail chain for all company products.
April10,201222
Estimated Balance Sheet `mn Share Capital Reserves Total Net Worth Total Debt Net Deferred Tax Total Liabilities Gross Block Dep Net Block Capital WIP Investments Current Assets Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Liabilities Sundry Creditors Short Term Debt Others Liabilities Provisions Net Current Assets Total Assets Estimated Income Statement `mn Net Sales Growth Gross Profit EBIDTA Growth Depreciation EBIT Growth Other Income Interest PBT Growth Tax Reported PAT Growth Adjusted PAT Growth
FY 10A 444 6800 7244 728 48 8019 6243 3617 2626 123 76 18037 13403 936 1867 1831 12843 7222 4229 45 1347 5194 8019
FY 11A 444 9810 10254 677 15 10946 6721 3891 2831 194 91 34224 19938 1137 10949 2200 26394 17461 6683 49 2201 7831 10946
FY 12E 888 13817 14705 136 15 14856 8152 4390 3762 271 91 43628 27221 1743 12465 2200 32897 23964 6683 49 2201 10731 14855
FY 13E 888 19341 20229 136 15 20380 9573 4916 4656 372 91 52570 33244 2205 14921 2200 37310 28378 6683 49 2201 15260 20379
FY 14E 888 26156 27044 136 15 27195 10759 5519 5240 521 91 63743 39994 2920 18629 2200 42400 33468 6683 49 2201 21343 27195
FY 10A 47764 23.0% 13885 3950 43.9% 601 3349 43.9% 119 254 3213 39.4% 710 2503 57.5% 2527 51.2%
FY 11A 66617 39.5% 19413 5856 48.3% 345 5511 64.6% 561 82 5990 86.4% 1686 4304 71.9% 4317 70.9%
FY 12E 89365 34.1% 22788 7907 35.0% 448 7459 35.3% 894 31 8322 38.9% 2347 5975 38.8% 5975 38.4%
FY 13E 109315 22.3% 28094 9838 24.4% 526 9312 24.8% 1202 16 10498 26.2% 3044 7453 24.7% 7453 24.7%
FY 14E 131782 20.6% 34132 11990 21.9% 602 11388 22.3% 1581 15 12954 23.4% 3757 9198 23.4% 9198 23.4%
April10,201223
Estimated Cash Flow Statement `mn PBT & extraordinary items Adjustment For Depreciation Interest (Net) Working Cap Changes Inventories Trade & 0th receivables Loans & Advances Trade Payables & Provisions Direct Taxes Paid Operating Cash Flow Cash Flow From Investing Capex Investments Cash Flow From Financing Change in Eq Cap Change in reserves Net Borrowings Dividend Paid Interest Paid Change in Cash Opening Cash Closing Cash Key Ratios Particulars Profitability ratios EBITDA% EBIT% PAT % Adj. PAT % Valuation ratios EPS (`) Adj. EPS (`) BV (`) EV (`mn) Dividend(`mn) DPS (`) P/E (x) P/BV (x) EV/EBITDA(x) Dividend Yield Return Ratios Adj. ROE% ROCE% Solvency ratios Debt/ Equity (x) Interest Coverage Ratio Turnover ratios Asset turnover (x) Inventory Turnover(days) Debtors (No of days) Creditor (No of days) DU Pont Analysis NP margin Asset Turnover(x) Financial leverage(x) ROE (%)
FY 10A 3213 601 148 780 -1376 117 -191 2230 -1341 3419 -319 -442 0 -1779 0 0 -1000 -442 -262 1320 547 1867 FY 10A 8.3% 7.0% 5.2% 5.3% 2.8 2.8 8.2 80502 666 1.5 85.7 29.9 20.4 0.6% 39.6% 43.3% 0.1 13.2 6.2 135.1 7.5 75.4 5.3% 6.2 1.2 40%
FY 11A 5990 345 -469 6059 -6535 -200 -215 13008 -1722 10250 -262 -662 -15 -906 0 0 -54 -662 -80 9082 1867 10949 FY 11A 8.8% 8.3% 6.5% 6.5% 4.8 4.9 11.5 158800 1110 2.5 50.2 21.1 27.1 1.0% 49.3% 58.1% 0.1 67.1 7.0 127.1 5.6 94.1 6.5% 7.0 1.1 49%
FY 12E 8322 448 31 -1385 -7282 -606 0 6503 -2347 5070 -1508 -1508 0 -2046 444 -444 -541 -1524 -31 1516 10949 12465 FY 12E 8.8% 8.3% 6.7% 6.7% 6.7 6.7 16.6 204203 1524 1.7 36.3 14.7 25.8 0.7% 46.6% 57.8% 0.0 239.9 6.9 127.5 5.8 112.0 6.7% 6.9 1.0 47%
FY 13E 10498 526 16 -2072 -6023 -462 0 4413 -3044 5924 -1522 -1522 0 -1946 0 0 0 -1930 -16 2456 12465 14921 FY 13E 9.0% 8.5% 6.8% 6.8% 8.4 8.4 22.8 201747 1930 2.2 29.1 10.7 20.5 0.9% 42.5% 52.9% 0.0 571.0 6.2 134.0 6.5 116.0 6.8% 6.2 1.0 43%
FY 14E 12954 602 15 -2376 -6750 -715 0 5090 -3757 7439 -1335 -1335 0 -2397 0 0 0 -2382 -15 3707 14921 18629 FY 14E 9.1% 8.6% 7.0% 7.0% 10.4 10.4 30.5 198040 2382 2.7 23.6 8.0 16.5 1.1% 38.8% 47.9% 0.0 761.8 5.5 135.0 7.0 114.0 7.0% 5.5 1.0 39%
April10,201224
Stock Ratings
BUY ACCUMULATE HOLD SELL NOT RATED Thestock'stotalreturnisexpectedtoexceed15%overthenext12months Thestock'stotalreturnisexpectedtobewithin1015%overthenext12months Thestock'stotalreturnisexpectedtobewithin010%overthenext12months Thestock'stotalreturnisexpectedtogivenegativereturnsoverthenext12months TheAnalysthasnorecommendationonthestockunderreview
RESEARCH Name SharmilaJoshi PrakashPandey PreetiGupta HiteshParekh HemenKapadia PervezDanish Name LokeshhN.Gowda RajanBhatia Designation HeadEquity VPResearch&PMS Sr.ResearchAnalystFundamental ResearchAnalystFundamental TechnicalStrategist Sr.TechnicalAnalyst Designation SeniorManagerSales InstitutionalDealer EmailID sharmila.joshi@fairwealth.in preeti.gupta@fairwealth.in
ContactNumber 09320159211
prakash.pandey@fairwealth.in 09313337742/098670081721
09867081737
hitesh.parekh@fairwealth.in
02239244988/9920616329
hemen.kapadia@fairwealth.in pervez.danish@fairwealth.in INSTITUTIONALDESK EmailID lokeshh.g@fairwealtth.in

09821276177 09312873108
ContactNumber 02230720073
rajan.bhatia@fairwealth.in
02230720057
Disclaimer: Thispublicationhasbeensolelypreparedfortheinformationpurposeanddoesnotconstituteasolicitationtoanypersontobuyorsella security. While the information contained therein has been obtained from sources believed reliable investors are advised to satisfy themselvesbeforemakinganyinvestments.FairwealthSecuritiesLtddoesnotbearanyresponsibilityforauthenticationoftheinformation containedinthereportsandconsequentlyisnotliableforanydecisiontakenbasedonthesame.FurtherFairwealthResearchreportonly providesinformationupdatesandanalysis.Allopinionsforbuyingandsellingareavailabletoinvestorswhentheyareregisteredclientsof FairwealthInvestmentadvisoryservices.Asamatterofpractice,Fairwealthrefrainsfrompublishinganyindividualnameswithitsreports.As perSEBIrequirementsitisstatedthat,FairwealthsecuritiesLtd,and/orindividualsthereofmayhavepositionsinsecuritiesreferredherein andmaymakepurchasesorsalewhilethisreportisincirculation.
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April10,201225

Titan Industries LTD - Initiating Coverage - Fairwealth Securities LTD - 10april 2012

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Fairwealth Institutional Research Titan Industries Ltd- Initiating Coverage

Titanic Run to slow down

April 10, 2012

TTAN IN 216623 1 11.5 4.9 1.1% 254/154 3471579 BSE,NSE 888

Price Performance % 1M Absolute Rel. to Nifty 2 4 3M 39 28 6M 14 9 12M 28 38

1 year price performance

Hitesh Parekh Research Analyst hitesh.parekh@fairwealth.in 022 39244988

FY 10A 47764 3950 8.3% 2527 5.3% 2.8 85.7 39.6%

FY 11A 66617 5856 8.8% 4317 6.5% 4.9 50.2 49.3%

FY 12E 89365 7907 8.8% 5975 6.7% 6.7 36.3 46.6%

FY 13E 109315 9838 9.0% 7453 6.8% 8.4 29.1 42.5%

FY 14E 131782 11990 9.1% 9198 7.0% 10.4 23.6 38.8%

Fairwealth Institutional Research Titan Industries Ltd

Fairwealth Institutional Research Titan Industries Ltd

Gold Demand By Region

Gold Demand by region (2010)

Motivation rather than form of purchase- Key FairwealthSecuritiesLtd

Fairwealth Institutional Research Titan Industries Ltd

Strong co-relation: Gold & Titan Stock Price

Source: Bloomberg, Fairwealth Institutional Research

India- Golden Future - Stable gold prices to be the key

Source: Company, Fairwealth Institutional Research

Fairwealth Institutional Research Titan Industries Ltd

Titan vs. others in organized market

Titan 45% Others 55%

Unorgan ised 90%

Source: Company, Fairwealth Institutional Research

Tanishq- Titans flagship brand

Source: Company, Fairwealth Institutional Research April10,20125

Fairwealth Institutional Research Titan Industries Ltd

Jewellery Division Sparkle grows fainter

Source: Company, Fairwealth Institutional Research

Diamond Price Index

10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 8.3% 7.1% 5.8% 8.8% 9.1% 9.3%

Fairwealth Institutional Research Titan Industries Ltd

Company Owned 15% Franchise owned 45%

Management Agent 40%

Innovative schemes to boost demand

Fairwealth Institutional Research Titan Industries Ltd

Source: Company, Fairwealth Institutional Research

Source: Company, Fairwealth Institutional Research

Fairwealth Institutional Research Titan Industries Ltd

Titan Watches: Redefining time

Indian Watch Market by Volume

Indian Watch Market by Value

Titan has ~65% market share in the organised market

Organised 40% Unorganise d 60%

Value(Rs Cr) Mass Mid Premium

Volume (in lakh pieces) Mass Mid Premium

Source: Company, Fairwealth Institutional Research

Fairwealth Institutional Research Titan Industries Ltd

Diverse product mix catering to all market segments

Titans Brand Positioning

Source: Company, Fairwealth Institutional Research

Fairwealth Institutional Research Titan Industries Ltd

Wide distribution network: Biggest Competitive advantage supporting the brands

311 291 265 236 207

300 250 200 150 100 50 0 FY07A FY08A

Fairwealth Institutional Research Titan Industries Ltd

17518 15020 9070 10253

0 FY 08A FY 09A FY 10A FY 11A FY 12A FY 13E FY 14E

Source: Company , Fairwealth Institutional Research