Titan Industries: Buy

A retailer of branded jewellery, watches, and eyewear, Titan Industries is among the few retailers to have managed strong growth in the ongoing slowdown. A presence across price points in both its key businesses —watches and jewellery — and an extensive network spanning 461 outlets, ensure that the company can capitalise on most areas of consumer spending, premium or mass market, urban or semi-urban. Currently at Rs 721, the stock trades at 15 times its trailing earnings. Fears that higher gold prices will impact Titan’s jewellery business appear overdone, as its focus on premium clients and steadywedding-related demand hold potential to drive sales growth. Gold price upswings are unlikely to dampen margins as prices are passed through to the customers. Sales in the watches segment moderated late last year, growing just 4 per cent in the December ’08 quarter, but picked up from late January, with youth brand, Fastrack, and new launches helping sales.

Titan’s precision engineering business broke even in the December quarter, though eyewear business Eye+ is yet to achieve that. The business has good potential given the robust expansion — 30 stores in the last quarter alone — and the high margins possible in eyewear. Though Titan’s profits took a hit in the December quarter, it was mostly attributable to one-time extraordinary expenses and employee gratuity costs. Gross profit margins of jewellery actually improved 2.5 percentage points to 6.4 per cent. Titan Industries has the highest return on capital employed among its retail peers. Turnover of working capital, too, has steadily improved to its present eight times. A franchise mode of expansion and low leverage of 0.4 times also cushion it against funding constraints, a challenge to other retailers