Buy Titan Industries - CMP: Rs247, TP Rs.338 - Prabhudas Lilladher

Titan has reacted by 25% on regulatory concerns: Titan Inds has reacted by 25% due to regulatory concerns regarding Gold and Jewellery industry. These relate to 1) linkage of Gold on lease charge to PLR 2) lowering of credit period to 90 days 3) KYC norms for buying gold and jewellery above Rs50,000 and 4) quantitative restrictions on import of Gold or buying of jewellery. we await clarity on these guidelines, postponement will be positive.

Long-term jewellery demand growth to sustain: Organized sector accounts for just 10% of jewellery market in India. Aggressive expansion plans of regional retail chains will increase the brand awareness which will accelerate consumer shift towards brands and help players like Titan.

Retail space addition, Studded share to increase growth: Tanishq has increased its retail space by 80% since FY11, this coupled with recent decline in Gold prices will accelerate volume growth. Tanishq is looking to increase studded share to 40% in the coming few years. This will boost profit growth as studded jewellery has 2.5-3x gross margins than Gold.

Watch margins have bottomed out: Watch margins declined 300bps since FY11 due to 1) depreciation of rupee impacting imports and 2) aggressive retail expansion in Helios. Worst seems over as Titan is developing local sources of components and retail expansion will start paying off; we expect 160bps margin expansion in watches over FY13-15.

Eyewear business on track; Titan Eye+ has seen only six store openings and 25% sales growth in 9MFY13 as the model is being readjusted. We expect the growth rates and store openings to accelerate in FY14.

Fastrack to achieve Rs10bn sales: Titan is also entering Helmets after launch of accessories and bags etc. under the Fastrack brand. Fastrack is expected to maintain high double-digit growth with expected sales of Rs10bn across watches, eyewear and accessories.

Estimate 28% PAT CAGR over FY13-15; BUY: We estimate 23.7% increase in sales and 27% increase in PAT over FY13-15. Net Interest income is expected to rebound in FY15 after being flattish over FY10-14. We are factoring in 70bps increase in Gold lease charge. BUY

Source : Equity Bulls

Keywords