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Titan Industries: Beyond watches… - Views on News from Equitymaster

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Titan Industries: Beyond watches…
Dec 14, 2007

Titan is among the few specialty retail players in the country with significant brand equity in watches and jewelry. In a move to leverage its assets and explore the untapped markets by diversifying its revenue stream, the company forayed into precision engineering business. In the revenue mix of the company, almost 90% to 95% of the revenues are accounted by the watch and jewellery division, while the other divisions make up for the rest. This other division comprises of sunglasses, precision engineering and the recent foray into prescribed eyewear market. Though the contribution of these recent initiatives made by the company is miniscule, there is significant potential and a huge market to explore. In this article, lets us take a look at precision engineering segment.

About the division: The precision engineering division (PED) was set up in 2003 to sweat existing manufacturing facilities and reduce costs. It was started with an aim to manufacture certain simple machinery for the watch division rather than importing it. After meeting the company requirement, the additional capacity was utilised to produce machinery and tools for to be sold in the external market. Titan's in-house tool room works round the clock whose 25% of tools produced are used for internal production while 75% of tools are produced for external customers. It also supplies precision components to the aviation and the automotive industry. Set up with an investment of over US$ 10 m, the division today has four main revenue streams - precision parts, dashboard instruments, electronic circuit boards, machine building and automation solutions.

Tapping new area: The estimated global PED market size is worth approximately US$ 34 bn. The PED division caters to both the international and domestic market offering precision components, dashboard instrument and sub systems. Titan is steadily growing its precision engineering revenue stream by expanding its customer base and diversifying further into high margin aerospace and medical space. The automation solutions market for the PED is about Rs 5 bn in India. The automation solutions category accounts for 5% of the global market for light and medium size capital goods.

Sweating its assets: The division has witnessed witnesses almost 58% YoY growth during FY07 and expects to more than double the its revenues in the current financial year to clock revenues worth Rs 800 m. The company expects PED division to be worth Rs 3 bn+ in next four to five years, growing at CAGR of 50%+. This can be done through scaling up current operations and moving up the value chain. This segment is expected to continue to grow significantly in the next three to four years not only in revenue terms, but also in terms of profitability.

What has led to the growth of this business?
With domestic auto production expected to grow at 15% per annum in the medium term, the demand or precision engineering products is expected to go up.

  • India is increasingly becoming a global sourcing hub for various industries, especially in the auto and allied sectors. Vehicle manufacturers from USA and Europe continue to outsource automotive components from low cost manufacturing countries like India. The entry of global OEMs, making India as their manufacturing base, has given a big boost to the industry.
  • Further, rising exports of Indian-made vehicles has also emerged as a key component of growth. The growth expected in the automobile industry will give a fillip to the auto component sector.

  • Export of electrical equipments from India would be an added growth driver apart from double-digit growth from its user industries.

  • With the liberalisation of economy and increased awareness for health, the demand for medical/surgical instruments has gone up substantially. This has accelerated the growth in indigenous production as well as imports. The present day healthcare has become completely dependent on electro-medical instruments and these have become indispensable tools for medical professionals mainly for diagnosis. As the demand for medical instruments is set to rise, the demand for precision engineering products is expected to increase.

The penetration levels of 37% indicate that there is lot of untapped potential in the Indian watch industry. Further, the company is also planning to make UAE its major export hub to increase the company's reach in various overseas markets. The company would be expanding the brand's regional and global reach with new regional market forays and wider watch collections.

To conclude…
Titan PED is preparing to foray into high-value products and is in discussion with potential partners who can provide the technological base and open up new markets through buy-back arrangements, joint business development, etc. The company is steadily expanding its precision engineering operations by adding new customers and diversifying further into high margin aerospace and the medical space. Since this initiative do use some existing facilities of Titan, the overall asset turnover is also likely to improve.

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