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Thursday, November 13, 2008

Titan Industries - one of the fastest growing companies

Company Profile:
Titan Industries is one of the fastest growing companies in the Consumer Goods & Luxury space in India. It is a leading manufacturer of watches and jewelry and has recently forayed into eyecare segment.

The company was established in 1984 as a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation. By mid nineties, it became India’s largest player in the watch industry overtaking HMT. It launched its first brand Sonata in 1998, and hasn’t looked back since then. At present, the company operates in all ranges (popular/midrange and premium) with its bouquet of brands – Sonata, Titan, Titan Raga, Fastrack, and Xylus. It also introduced global brands such as Tommy Hilfiger and Hugo Boss into India. Currently, the company has a total network of 243 ‘World of Titan’ and 12 Sonata showrooms.

In 1995, the company diversified into jewelry under Tanishq. Its pioneering role as a first mover played an important role in a fragmented market. Later on the company launched its second Jewelry brand, Gold Plus. The network has expanded to 114 Tanishq boutiques and 28 Gold plus stores.Titan has now diversified into fashion Eyewear by launching Fastrack Eye-Gear sunglasses, as well as Prescription Eyewear. The company has currently 30 stores and plans to cross the 150 mark by FY11.

Titan had an excellent quarter with the Sales and Net Profits going up 53% and 88% respectively. All segments grew in strong double digits with the mature Watch business growing 19% and Jewelry an impressive 71% (aided by higher Gold prices) and the newly created Eyewear – a scintillating 94%. What was gratifying was that all this growth was achieved with an improvement in margins across segments.

The profits got translated into Earnings per share(EPS) growth of 88% with the EPS itself amounting to Rs 19.63 for Q2 of FY0809. For the half year, Titan has shown Sales and Profit growth of 38% and 104% respectively. The momentum in Eyewear makes us believe that going forward also, this growth trajectory is sustainable.

Investment Positives:
Titan has reported a strong growth in its revenues, EBIDTA and PAT. Further, all its segments (Watches, Jewelry and Eyewear) have taken part in this growth.

Titan operates in the sector which to a large extent is insulated from commodity and interest rate meltdowns.

Its foray into Eyewear has been a success and it now has three distinct growing business segments.

Titan always had a problem of high valuations but this has been corrected in the recent 40% fall in its share price in the stock market crash inspite of the impressive profit growth.

Concerns:
In case of sudden fall in consumer spending, demand for Titan’s products which are upmarket will be affected.

If Gold prices move up sharply, the fortunes of its Jewelry business are bound to suffer.

Recommendation:
Titan is one of the most admired brands in all the segments it operates in. The company has shown a very robust growth in the past and continues to surpass the street expectations with its stellar numbers. Company’s recent foray into Eyewear has put it into a new league among specialty retailers. With the stock price correcting substantially in the recent stock market crash, we believe the valuations are very attractive. The stock is quoting at 17x FY09E EPS, which leaves excellent scope of appreciation considering that the Net profits are likely to go up by around 60%. We recommend a strong BUY with a one year price target of Rs 1500.

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