Overweight rating to Titan Industries shares: HSBC

Sep 30 2013, 10:41 IST
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Titan has started to explore ways to export on its own either directly, selling to an exporter or through wholesale route. Titan has started to explore ways to export on its own either directly, selling to an exporter or through wholesale route.
SummaryResumption of gold imports, new diamond and fragrance brands raise market clout.

Titan, but retail operations are run by franchise) and L3 (where inventory ownership and retail operation are with franchisee).

Challenges but competitive advantages: Titan believes that its scale and reputation gives it a significant competitive advantage over smaller organised jewellers in funding working capital or even securing supply of gold. In effect, the leasing ban has actually made Titan stronger than competitors.

Near-term demand: Q2 gold demand is likely to be weak as it is a seasonally weaker quarter and also due to advanced purchases by consumers in the last quarter (when jewellery sales were up 47% y-o-y). Titan also decided not to sell gold coins (which usually is under 10% of sales) but its diamond promotion in this quarter has done well, and revenue mix will be substantially better than the last quarter which should make up for weaker gold jewellery sales. In particular, its Inara (affordable diamond jewellery range, priced below R500k, but designed to give the appearance of large ticket diamond jewellery) got a good response in market.

Indian rupee on Sept 5

But watches are going through a rough patch: Watch margins and demand are clearly under pressure. Last quarter same-store growth declined 1% y-o-y and Q2 is unlikely to be better. INR weakness has weighed on margins (50% of components are imported) and Titan had to take another price hike to keep the margins from falling. Strategically too, Titan is working towards making the Titan brand positioning as more premium, which should help address the balance of margins and volumes. Titan has also invested in a stainless steel case factory with the technical assistance of Seiko, the Japanese watch maker, which will reduce its reliance on imports.

Fragrance new launch: Titan has launched six variants of Skin brand perfumes (three for men and women each) each in 50ml and 100ml units (R990 and R1,790 each) and plans to go to top 10 cities to start with. This foray is consistent with its strategy of becoming a lifestyle company and aims to use its own distribution and other channels such as departmental stores.

Titan sees fragrances as a large and growing opportunity (R25 bn and growing is strong double digits) and with significant gaps. As per Titan management, its fragrance is a world-class product, manufactured in France and by the same perfumers who also develop perfumes for several global luxury brands. Titan has priced it nearly

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