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Titan – Clocking on brands - Views on News from Equitymaster
 
 
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  • Jul 5, 2000

    Titan – Clocking on brands

    No wonder! This company occupies the sixth largest position among “manufacturing brands” in the world. Its brands include Tanishq, Sonata, Nebula, Synchrony and FastTrack. Titan has also been voted as the most admired durable company in the annual A&M-MARG survey. With Timex hived off, the company has huge market to exploit!

    Titan Industries Limited, is the market leader in the watches segment with 40% market share. In FY00 sales shot up by 30% compared to 9% in FY99. However operating margins were down due to the labour problems and a lacklustre export market. But things are moving in favour of the company.

    Financials
    (Rs m) FY1999 FY2000 Change
    Sales 4,820 6,303 30.8%
    Other Income 24 130 441.7%
    Expenditure 3,935 5,506 39.9%
    Interest 519 509 -1.9%
    Depreciation 201 204 1.5%
    Profit before Tax 189 214 13.2%
    Tax 35 22 -37.1%
    Profit after Tax/(Loss) 154 192 24.7%

    The company has been aggressively concentrating on the export segment–USA, Middle East, and Europe (the company has a plant in Netherlands) where the potential demand for jewelry is high. For this it is widening its distribution network and is spending heavily on the advertisement front to enhance its brand image.

    It has stopped making clocks (converted its plant into a plastic watch-manufacturing unit) and has decided to outsource them. Titan’s input presently come in the form of design, styling, marketing and quality control. This should reduce its operating costs.

    The company has been altering its sales mix from a typical watch manufacturing company towards jewelry that is a high margin-high growth segments. This also should enhance its margins.

    Performance
    (Rs m) FY99 FY00
    Operating Profit (Rs m) 885 797
    Operating Profit Margin (%) 18.4% 12.6%
    Net profit margin (%) 3.2% 3.0%
    Earnings per share (Rs) 3.6 4.5
    P/E 18.1 14.5
    Market cap/Sales   0.44

    However there are several concerns.

    • The excise duty has been raised on watches from 13% to 16% in the FY00 budget.
    • After the Exim policy of FY99, the industry has been thrown open to competition from multinationals as the government deregulated the import of watches (this is the reason why we have lot of Swiss watch launches).
    • Another matter of concern is the high working capital requirements. When we see the net working capital to sales of Titan, it is nearly 65%-68%. This is high.

    But the Indian market demographics indicate the high potential demand for watches. The penetration level of mechanical watches in the rural markets indicates that only 78 out of 1,000 wear watches, whereas it is 97 in the urban market. On the other hand for the quartz segment, the penetration is as low as 68 out of 1,000 in rural markets. This along with the high margin jewelry segment (growing at 40% per annum) and focus of the company to widen its distribution network and, of course the brand equity, should help the company is posting better results in years to come.

    The stock is currently trading at Rs 65.7 at a P/E multiple of 14.2 on FY00 earnings.

     

     

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