21 May 2014
Update | Sector: Retail
Titan Company
BSE Sensex
24,298
S&P CNX
7,253
CMP: INR310
TP: INR360
Buy
New RBI circular lifts ban on gold on lease
Stock Info
Bloomberg
Equity Shares (m)
Major regulatory concerns behind; upgrade to Buy
TTAN IN
887.8
The development:
The Reserve Bank of India
(RBI),
in its circular released
52-Week Range (INR)
344/200
today, has offered relief to domestic jewellers for Metal Gold Loans (Gold
1, 6, 12 Rel. Per (%)
13/19/-8
on Lease). As per the circular,
“it has been decided to permit the nominated
M.Cap. (INR b)
275.3
banks to give Gold Metal Loans (GML) to domestic jewellery manufacturers
M.Cap. (USD b)
4.7
out of the eligible domestic import quota of 80% to the extent of GML
outstanding in their books as on March 31, 2013”.
What it means:
We interacted with the managements of Titan, TBZ and PC
Financial Snapshot (INR Million)
Jewellers. Essentially, it means the return of gold-on-lease scheme. We note
Y/E March 2014 2015E 2016E
that RBI had banned this low cost inventory funding with natural hedge
108,7 124,316 146,625
Net Sales
39
mechanism in August 2013 along with several other measures to curtail gold
10,23 12,156 14,740
EBITDA
imports — ban on import of coins, introduction of 80:20 gold import
Adj PAT
7,666 8,740 10,527
scheme. Hence, Titan and other jewellery retailers had to buy gold with
EPS (INR)
8.6
9.8
11.9
upfront payment without any provision for credit. This resulted in a strain
Gr. (%)
7.0
14.0
20.5
BV/Sh.(INR) 27.7
34.6
42.9
on balance sheet and Titan’s net cash in FY13 balance sheet turned net debt
RoE (%)
34.7
31.6
30.6
as on March 31, 2014. Also, it introduced complexity in the form of separate
RoCE (%)
36.9
31.5
31.3
hedging mechanism with associated costs. Titan had recently procured
P/E (x)
35.9
31.5
26.2
approval for international hedging as domestic contracts were not
P/BV (x)
11.2
9.0
7.2
sufficiently liquid. Post approval, its P&L had reverted to gold-on-lease
regime as regards costs (as it earned premium on currency forwards), but it
still had to pay upfront for procurement of gold. We note that the 80:20
scheme of gold imports still remains.
Shareholding pattern %
What next?
While the 80:20 scheme and regulatory uncertainty around
Mar-14 Dec-13 Mar-13
customer advances schemes persist, we believe the ban on gold on lease
Promoter 53.1
53.1
53.1
was the harshest step from Titan’s perspective. Thus, we believe lifting the
Dom. Inst
2.4
2.0
2.8
ban is a major positive as it allows Titan to manage its Jewellery business
Foreign
21.7
21.6
19.1
efficiently without increasing debt requirements. From P&L perspective,
Others
22.8
23.4
25.1
there is no major change. However, from working capital and balance sheet
perspective, it brings material relief. Also, it will preclude the need for
separate hedging through international exchanges as gold-on-lease itself is a
Stock Performance (1-year)
natural hedging tool.
Upgrade to Buy:
Our cautious stance on Titan was predicated on the harsh
regulatory regime combined with subdued discretionary demand (with
absence on gold on lease being the key concern). With the removal of ban
on gold on lease, modest sequential recovery in same store performance
and no change in expansion plans (guidance of 90,000sqft space addition in
Jewellery), we believe major concerns are behind. While we await greater
clarity from the management on the operational aspects before making
changes to our estimates, we upgrade the stock to a
Buy
from
Neutral
rating, with a revised target price of INR360 (30x FY16E EPS). Sharp
correction in gold price is a key risk.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Manish Poddar
(Manish.Poddar@MotilalOswal.com); +91 22 3027 8029
Investors are advised to refer through disclosures made at the end of the Research Report.

Titan Company
Sequential recovery in Jewellery SSG
Tanishq SSG (%)
29
12
3
10
8
(7)
(15)
6
63
49
27 17 28 15
50
Jewellery volume, sales growth recover from the bottom
Volume Growth (%)
72
37
50
38
40
0 -5
-7
45
26 31
8
-21
6
27 16
12 9
-11
Sales Growth (%)
47
67
4
-4
3
-2
Source: Company, MOSL
Source: Company, MOSL
Jewellery EBIT margin (%)
Jewellery EBIT Margin
12.5%
10.1%
10.2%
9.7% 9.6% 10.1%
9.8%
13.4%
11.9%
10.2%10.6%
8.8%
Watches EBIT margin (%)
Watches EBIT Margin
16.1%
15.2%
12.9%
12.5%
14.0%
11.6%
12.1%
10.9%
11.3%12.0%
10.5%
Source: Company, MOSL
Source: Company, MOSL
Jewellery space doubles in last 3 years
Jewellery Space ('000) sq. ft
602
460
358
647
674
697
720
Balance sheet turns net debt in FY14
2.3
1.5
1.0
0.6
0.5
0.2
D/E
(0.2)
(1.0)
0.0
(0.7) (0.6)
FY11
FY12
FY13
1QFY14 2QFY14 3QFY14 4QFY14
Source: Company, MOSL
Source: Company, MOSL
21 May 2014
2

Titan Company
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
PBT
Tax
Tax Rate (%)
Reported PAT
Extraordinary items
Adjusted PAT
Change (%)
2011
65,209
39.5
5,857
9.0
345
5,512
82
561
5,991
1,686
28.1
4,273
-32
4,305
64.6
2012
88,384
35.5
8,329
9.4
449
7,881
437
941
8,385
2,336
27.9
6,002
-47
6,048
40.5
2013
100,577
13.8
9,556
9.5
545
9,011
506
1,558
10,062
2,896
28.8
7,166
0
7,166
18.5
2014
108,739
8.1
10,236
9.4
656
9,580
871
1,621
10,329
2,664
25.8
7,666
0
7,666
7.0
(INR Million)
2015E
124,316
14.3
12,156
9.8
737
11,419
1,146
1,899
12,172
3,433
28.2
8,740
0
8,740
14.0
2016E
146,625
17.9
14,740
10.1
871
13,868
1,309
2,102
14,661
4,135
28.2
10,527
0
10,527
20.5
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2011
444
9,810
10,254
677
15
10,946
6,224
3,393
2,696
194
91
33,800
19,938
1,137
10,965
1,760
25,969
24,184
1,786
7,830
10,946
2012
888
13,611
14,499
59
-38
14,520
7,380
3,693
3,578
249
160
42,802
28,787
1,631
9,605
2,779
32,378
29,435
2,942
10,424
14,520
2013
888
18,744
19,632
60
-80
19,612
8,564
4,078
4,402
417
185
53,579
36,779
1,638
11,365
3,797
39,039
35,478
3,561
14,541
19,629
2014
888
23,726
24,614
7,868
-137
32,345
9,655
4,685
4,970
150
185
58,734
42,489
1,791
10,356
4,098
31,694
27,818
3,876
27,040
32,344
(INR Million)
2015E
2016E
888
888
29,843
37,212
30,731
38,100
9,599
10,599
-205
-288
40,125
48,411
10,830
12,405
5,423
6,294
5,407
6,111
150
150
185
185
58,561
71,157
49,238
55,076
2,057
2,425
2,643
8,451
4,622
5,206
24,178
29,193
19,521
23,591
4,657
5,601
34,383
41,965
40,125
48,411
E: MOSL Estimates
21 May 2014
3

Titan Company
Financials and valuation
Ratios
Y/E March
Basic (INR)
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Valuation (x)
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
Profitability Ratios (%)
EV/EBITDA
Dividend Yield (%)
Turnover Ratios
Profitability Ratios (%)
RoE
Operating RoE
RoCE
Leverage Ratio
Turnover Ratios (%)
2011
2012
2013
2014
2015E
2016E
4.8
5.2
11.5
1.5
30.2
64.0
59.6
26.9
-0.2
-1.8
0.5
6.8
7.3
16.3
2.0
30.1
45.5
42.7
19.0
3.0
31.9
0.7
8.1
8.7
22.1
0.0
30.4
38.4
35.7
14.0
2.6
27.6
0.0
8.6
9.4
27.7
0.0
28.3
35.9
33.1
11.2
2.5
26.7
0.0
9.8
10.7
34.6
0.0
30.0
31.5
29.1
9.0
2.3
23.2
0.0
11.9
12.8
42.9
0.0
30.0
26.2
24.2
7.2
1.9
18.8
0.0
48.8
0.0
58.1
48.5
0.0
61.9
42.0
0.0
52.8
34.7
0.0
36.9
31.6
0.0
31.5
30.6
0.0
31.3
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
Others
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Divd Paid (incl Tax)
Other Financing Activities
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2011
5,991
345
-479
1,718
-6,461
32
11,525
-524
-15
0
-539
0
-51
776
1,061
-1,888
9,098
1,867
10,965
2012
8,385
449
-504
2,389
3,953
47
2,949
-1,212
-69
0
-1,281
444
-618
1,290
1,564
-3,028
-1,360
10,965
9,605
2013
10,062
545
-1,051
2,854
2,357
0
6,448
-1,352
-25
0
-1,376
0
1
1,806
1,508
-3,312
1,760
9,605
11,365
2014
10,329
656
-750
2,677
13,509
123
-4,574
-824
0
0
-824
0
7,807
2,181
1,238
4,388
-1,010
11,365
10,355
(INR Million)
2015E
2016E
12,172
14,661
737
871
-753
-793
3,364
4,052
15,055
1,775
0
0
-4,756
10,499
-1,175
-1,575
0
0
0
0
-1,175
-1,575
0
0
1,731
1,000
2,172
2,622
1,340
1,495
-1,781
-3,117
-7,712
5,807
10,356
2,643
2,643
8,451
E: MOSL Estimates
21 May 2014
4

Titan Company
NOTES
21 May 2014
5

Disclosures
Titan Company
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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 CO LTD
No
No
No
No
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21 May 2014
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