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Titan Co. (TTAN IN) Summary

Core Content

Titan Co. (TTAN IN) is a consumer discretionary company with a current share price of INR341 and a target price of INR354 (+4%). The company's market capitalization is INR302.6B, and its average daily turnover is USD5.9M. The stock has been downgraded to a HOLD rating due to delayed earnings revival and limited upside potential over the next year.

Main Points

• Performance Outlook:

  • The company's performance in FY16 is affected by muted demand for lifestyle products and a fall in gold prices.
  • Revenue revival is expected from FY17 onwards, primarily driven by the new gold advance scheme and recovery in urban demand.
  • The earnings revival is anticipated to be delayed, with a broad-based recovery expected by 2HFY17.

• Strategic Initiatives:

  • Aggressive marketing, expansion in tier-II and tier-III cities, premiumisation, store renovations, and diversification into lifestyle categories.
  • The focus on the unorganised, underpenetrated, and under-serviced segments, with plans to enter new categories like fragrances, accessories, and more.
  • Emphasis on digital enablement and consumer analytics to strengthen operations.

• Segment Focus:

  • The company aims to focus on the adornment and status segments, targeting high-value studded diamond jewellery for growth.
  • It has a 4% market share in the total jewellery industry, with 1% in the wedding segment, 8% in daily wear, and 3% in special occasion wear.

• Geographic Expansion:

  • Expansion plans include increasing presence in western and northern India, targeting new smaller towns.
  • The company is also planning to enter GCC countries in the next five years, focusing on NRIs.

• Financial Metrics:

  • Revenue: Expected to grow from INR108,150.8M in FY14A to INR166,796.4M in FY18E.
  • Core Net Profit: Projected to rise from INR7,603.6M in FY14A to INR13,291.4M in FY18E.
  • Core EPS: Forecast to increase from INR9 in FY14A to INR15 in FY18E.
  • Valuation Ratios: Core P/E is expected to decrease from 39.8 in FY14A to 22.8 in FY18E, while P/BV will drop from 12.0 to 5.5.
  • Free Cash Flow Yield: Projected to increase from 0.6% in FY15A to 11.7% in FY16E and 4.1% in FY18E.

• Dividend and Earnings:

  • The company is not planning to increase dividend payouts to support the new gold advance scheme.
  • Net dividend yield is expected to remain around 0.9%.
  • The stock corrected 25% from its 52-week high of INR440 after a 23% earnings fall.

• Risks and Challenges:

  • Key risks include falling gold prices and the implementation of GST, which could increase taxes and affect resale value.
  • The company faces challenges in the savings market due to high price competition.
  • The break-even period has increased from 3 years to 4.5 years due to a challenging environment.

• Key Data:

  • Major Shareholders: Tamilnadu Industrial Development Corp. (27.9%), Tata Sons Ltd. (16.1%), Matthews International Capital Management (7.5%).
  • Market Cap: USD4.6B.
  • ADTV: USD6M.
  • 52-week high/low: INR440/316.

Key Information

• Jewellery Revival: The new gold advance scheme is expected to collect INR4.5B by 4QFY16, aiding the revival of jewellery revenue.
• Dividend Policy: The company will not increase dividend payouts to maintain a base for the new scheme.
• Consumer Sentiment: Still weak, with no visible signs of recovery in the short term.
• Lifestyle Demand: Focus on premiumisation and store renovations to drive growth in the lifestyle segment.
• Growth Strategy: Targeting middle India for expansion, with a focus on tier-II and tier-III cities.
• Digital Transformation: The company is creating a digital vertical to leverage consumer analytics and big data.

Financial Highlights

Summary

Titan Co. (TTAN IN) faces challenges in the current fiscal year due to muted demand and falling gold prices, but is expected to recover in FY17 through strategic initiatives and the new gold advance scheme. The company is focusing on expanding into tier-II and tier-III cities, and leveraging digital marketing and store renovations. Despite the challenges, the company remains optimistic about its growth prospects, particularly in the high-value studded diamond jewellery segment. The stock has been downgraded to a HOLD due to the delay in earnings revival and limited upside potential. Financial metrics indicate a projected growth in revenue and net profit, with a declining P/E ratio and increasing free cash flow yield. The company's strategy involves maintaining an asset-light model and focusing on the adornment and status markets, while the savings market is not a priority.