Titan Industries - Annual Report - 2008-2009

TITAN INDUSTRIES LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

To
The Members of
Titan Industries Limited

The Directors are pleased to present the Twenty fifth Annual Report and the
Audited Statement of Accounts for the year ended March 31, 2009.

Financial Results

Rs. in crores
2008-2009 2007-2008

Total Income 3852.98 3042.87
Less: Excise Duty 44.34 47.35
Net Income 3808.64 2995.52
Expenditure 3506.89 2743.35
Gross profit 301.75 252.17
Interest 29.43 20.14
Cash operating profit 272.32 232.03
Depreciation/Amortisation 41.76 29.73
Profit before taxes 230.56 202.30
Income taxes - Current 63.00 33.04
Deferred (6.53) 7.27
Fringe Benefit Tax 4.21 3.70
Profit after taxes for the year 169.88 158.29
Less: Income tax of earlier years 10.92 8.02
Net Profit 158.96 150.27
Profit brought forward 218.55 130.93
Amount available for appropriation 377.51 281.20

Appropriations:

Debenture redemption reserve 5.28 5.28
Proposed dividend on equity shares 44.39 35.51
Tax on dividends 7.54 6.04
Transfer to general reserve 109.27 15.83
166.48 62.66
Balance carried forward 211.03 218.54

In a difficult year threatened by slowdown in several sectors, Titan
Industries continued its spree of improved performance year after year,
achieving significant growth in sales and profits. For the year 2008-09,
sales income grew to Rs. 3,847.72 crores increasing by 26.5% from
Rs.3,041.09 crores. Profit before taxes grew by 14% to Rs. 230.56 crores
from Rs. 202.30 crores during the previous year. Net profit for the year
stood at Rs. 158.96 crores as compared to Rs. 150.27 crores in the previous
year. Watch segment sales grew by 3.6% to Rs. 908.49 crores, while
Jewellery sales went up by 36.3% to Rs. 2,763.20 crores. Sales of other
products, including Eyewear, Accessories and Precision Engineering
components, rose by 48.8% to Rs. 136.29 crores.

The Company after a well thought-out plan entered the US Jewellery market
with the opening of two Tanishq Stores, one each at Chicago and New Jersey
in financial year 2008-09. But due to the adverse effect of severe economic
slow down in USA, which resulted in poor customer sentiments, the expected
sales did not materialise. The Company, in order to curtail and minimize
cash losses, closed down these stores after considered evaluation of store
economics resulting in a charge of Rs. 29.02 crores to the Profit and Loss
Account.

The Company's fledgling Prescription Eyewear Division which is in the
process of establishing a national network of world class optical stores,
incurred a loss of Rs. 32.69 crores, in its first full year of operations.

The year saw the largest expansion in our retail network adding 135 new
stores (1,78,235 sq.ft.) across watches, jewellery and eyewear businesses.
As on March 31, 2009, the Company has a total of 487 stores (6,03,686
sq.ft.) delivering a retail turnover of Rs. 3300 crores annually.

International Operations

The Company achieved an export turnover of Rs.130 crores during the year.
Exports include sale of Watches, Jewellery and Precision engineered
components.

The international markets presented a mixed picture, with some countries
displaying good growth but some others such as Dubai and Singapore
witnessing strong contraction in demand.

While the Watch sales grew by 10%, Jewellery sales were down by 42%,
primarily due to the decision of the Company to reduce jewellery exports,
on account of the lower margins.

Dividend

The Directors are pleased to recommend payment of dividend on equity shares
at the rate of 100% (Rs.10.00 per equity share), including a special Silver
Jubilee dividend of 20%, subject to approval by the shareholders at the
Annual General Meeting.

Finance

During the year under review, the Company raised a total of Rs. 249.20
crores from borrowings, of which Rs. 239.82 crores were from Commercial
banks and the balance of Rs. 9.38 crores from other sources. Borrowings of
Rs. 287.55 crores were repaid during the year. The Company incurred
Rs.68.09 crores as capital expenditure on refurbishment and expansion
programmes at manufacturing facilities, retail outlets and IT Hardware
systems.

The year 2008-09 witnessed one of the worst global financial crisis with
the collapse of several financial institutions across countries. The global
financial turmoil had its impact on India as well, with the rupee money
market and foreign exchange market coming under severe strain. Inflationary
pressures also forced Reserve Bank of India to tighten the monetary policy.
All these put a strain on the borrowing rate. As a result, the average cost
of borrowings for the year was 10.97% as against 9.24% in the previous
year.

As on March 31, 2009, there were no Fixed Deposits held by the Company from
the public, shareholders and employees other than unclaimed deposits
amounting to Rs. 0.12 crore.

An amount of Rs. 5.28 crores has been transferred to the debenture
redemption reserve in accordance with statutory requirements and the terms
of Rights Issue.

An amount of Rs. 109.27 crores has been transferred to the General Reserve.

During the year under review, the Company made payments aggregating to
Rs.388.23 crores by way of central, state and local taxes and duties as
against Rs.369.27 crores in the previous year.

Depreciation

During the year 2008-09, the Company revised the estimated useful life of
Furniture & Fixtures from 15 years to 5 years which has resulted in an
additional depreciation charge of Rs. 7.90 crores.

Actuarial Valuation Impact

During the quarter ended December 31, 2008, due to the reduction in the
discount rate for actuarial valuation of Gratuity and Leave salary, there
was a negative impact of Rs. 12.78 crores on the third quarter financial
results. This provision got reversed during the last quarter (Jan 09-Mar
09), consequent to the upward movement of the discount rate, and thus for
the year 2008-09 as a whole, there was no significant impact on this
account.

Excise Duty on Jewellery

The Company has received a showcause notice from the excise authorities for
Rs. 49.83 crores (excluding interest and penalty) towards excise duty on
jewellery despatches from September 2005 to December 2008. The Company has
been legally advised that the claim vide the notice is not sustainable.

Change in the Method of Valuation of Gold Inventory

In order to facilitate a more appropriate presentation of the financial
statements and based on the internal evaluations by the Management, the
Company has decided to adopt First-in-First-out (FIFO) method of valuation
of gold inventory as against the existing weighted average method with
effect from April 1, 2009.

Subsidiaries

It was mentioned in the last year's Directors' Report that a Scheme of
Amalgamation' of the three domestic subsidiary Companies, i.e., Samrat
Holdings Ltd., Questar Investments Ltd and Titan Holdings Ltd. with Titan
Industries Ltd. (u/s 391 to 394 of the Companies Act, 1956) was pending
with the jurisdictional High Courts.

The Company is glad to report that the said Scheme of Amalgamation of the
three domestic subsidiary Companies, has been sanctioned and approved by
the jurisdictional High Courts with the appointed date as April 1, 2007 and
effective date as March 30, 2009.

The Annual Accounts of the above three Companies has therefore been merged
with the Accounts of Titan Industries Ltd. for this financial year.

Pursuant to the Scheme of Amalgamation of Samrat Holdings Ltd., Questar
Investments Ltd.,and Titan Holdings Ltd, (wholly owned subsidiaries of the
Company, carrying investment activities) with the Company as sanctioned by
the jurisdictional High Courts, all assets and liabilities have been vested
in and transferred to the Company retrospectively with effect from April 1,
2007.

Post merger, the following are the Subsidiaries of the Company:

Titan Time Products Ltd., Goa
Tanishq (India) Ltd., Bangalore
Titan Mechatronics Ltd., Hosur
Titan Properties Ltd., Hosur

The performance highlights of these Subsidiary companies are as under:

Titan Time Products Ltd. sold 6.85 million Electronic Circuit Boards in
2008-09 and made a net profit of Rs. 80.68 lakhs.

Tanishq (India) Ltd made a net profit of Rs.23.30 lakhs;Titan Mechatronics
Ltd made a net profit of Rs.0.54 lakhs and Titan Properties Ltd made a
profit of Rs. 382.02 lakhs. None of these companies have declared a
dividend.

As per Section 212(1) of the Companies Act,1956,the Company is required to
attach to its Accounts the Directors' Report, Balance Sheet and Profit and
Loss Account of each of these subsidiaries. As the consolidated accounts
present a complete picture of the financial results of the Company and its
subsidiaries, the Company had applied to the Central Government seeking
exemption from attaching the documents referred to in Section 212 (1).
Approval for the same has been granted. Accordingly, the Annual Report of
the Company does not contain the individual financial statements of these
subsidiaries, but contains the audited consolidated financial statements of
the Company and its subsidiaries. The Annual Accounts of these subsidiary
companies, along with the related information, is available for inspection
at the Company's registered office and copies shall be provided on request.
The statement pursuant to the approval under Section 212(8) of the
Companies Act, 1956, is annexed together with the Annual Accounts of the
Company.

Consolidated Financial Statements

The Consolidated Financial Statements of the Company prepared as per
Accounting Standards AS 21, consolidating the Company's accounts with its
subsidiaries, has also been included as part of this Annual Report.

Outlook for 2009-10

The year 2008-09 was marked by fluctuating fortunes, with excellent
performance by the Company during the first half of the year, followed by
somewhat lukewarm performance in the second half due to the economic slow
down, sharp rise in the gold prices and a planned down stocking of Sonata
watches in the distribution pipeline.

Despite a challenging market place, the watches business will pursue
profitable growth through investment in brands, sensible expansion of
retail net work, product innovation, making Titan a premium brand with
higher price points and transformation of Sonata business model.

The Jewellery Division will continue its growth path, through various
initiatives including launching of new collections, setting up of large
format stores, focus on markets/segments/groups of customers less affected
by the economic slow down, improving the walk-ins, and improving the
merchandising at the stores.

As regards international business, the Company will pursue profitable
growth in Asian markets where the Company is already present, and focus on
becoming market leaders in few of the Asian markets.

The Precision Engineering Division of the Company, besides aiming to grow
the top line despite the economic slow down, will utilize the opportunity
to strengthen its key processes with Lean manufacturing techniques and seek
opportunities for moving up the value chain. The Automation Division will
work on design standardization, efficient project management and lead time
reduction.

The Company's new business vertical, Eyewear which was launched in March
2007 under the brand name Titan Eye + will be consolidating its operations
during 2009-10, based on the experience gained during the first full year
of commercial operations.

Overall, the year 2009-10 will require skilful navigation around realistic
growths, strict management of costs, seizing the available opportunities
amidst the slow down, keeping the employees focused and motivated in these
challenging times, and strong innovative marketing initiatives to drive
demand.

Corporate Social Responsibility

The Company has always been supporting good social causes for the past
several years. Education, women's empowerment and supporting the disabled
have been causes close to the Company. With the Company's entry into eye
wear business, vision correction has also been added. For its involvement
with the local communities, the Company has won several laurels over the
years. This year too, the Company won the Karmayog award in addition to the
Pegasus award from Reader's Digest. The Titan School, the Titan Scholarship
program, and Meadows have been examples of consistent support to social
causes by the Company.

Volunteering by the employees adds significant momentum to the Company's
efforts. Their passion and commitment was evident in the large number of
eye camps organised by them in and around Hosur. Over 4,000 persons were
treated for eye correction with free spectacles provided by the Company and
more than thousand got the benefit of free surgery. The Company hereby
thanks the doctors from Narayana Nethralaya for their unstinted support to
these efforts. In addition, the Eye clinic in Hosur set up by the Company
where the doctors from Narayana Nethralaya attend to patients at subsidized
cost, has also helped to enhance the image of the Company in the community.
The Company is a signatory to the United Nations Global Compact and has
been filing its application regularly with the UN.

Recently, the Company has been supporting Unnati, an NGO working on
vocational training for youth from weaker sections of the society. This
unique initiative helps the youth to acquire vocational skills thereby
making them employable and hence useful members of the society.

In the coming year, the Company will continue to invest in good and
relevant social causes.

Awards and Recognition

The Company's connect with the external world is often gauged by the awards
and recognition that the Company and its brands have received from
independent external agencies. It is an indication of the respect, trust
and affection which the Company and its products have earned in the market
place.

Titan' won the following awards:

* Images Fashion Awards - Most admired time wear brand for 9th Consecutive
year.

* Global Youth Marketing Forum - best time wear award.

* Shoppers Stop Pinnacle Award for best Brand of watches.

* Best brand performance for 4 years across all brands by Future Group.

* Excellence in Franchising & Business Development - by Franchisee India
for 2nd consecutive year.

'Tanishq' won the following awards:

* Best Retail Chain by Retail Jeweller India.

* Gold Vivaha Jewellery - Jodha Akbar Swan set by Retail Jeweller India.

* CNBC Awaaz Award for most preferred brand.

Apart from the above, the Company also won the IFA 2009 special award to
acknowledge the Company's uncontested leadership in the Timewear and
Jewellery categories.

Corporate Governance

A separate report on Corporate Governance forms part of the Annual Report
along with the Auditors' Certificate on Compliance.

Directors

Mr. Ishaat Hussain, Mr. Nihal Kaviratne and Ms. Vinita Bali retire by
rotation and are eligible for re-appointment.

Mr. V. Parthasarathy, Senior General Manager- Finance, Tamilnadu Industrial
Development Corporation Ltd (TIDCO) was appointed as a Director of the
Company on October 20, 2008 in the casual vacancy caused by the resignation
of Mr. S. Susai. The Directors wish to record their gratitude and
appreciation for the wise counsel and contribution by Mr. S. Susai during
his tenure as a Director of the Company. Member's attention is drawn to
Item No. 6 of the Notice for the appointment of Mr. V. Parthasarathy as a
Director of the Company.

Mr. Kumar Jayant, IAS, Executive Director, Tamilnadu Industrial Development
Corporation Ltd. and a nominee of TIDCO, who was appointed as a Director,
with effect from October 29, 2007 resigned on December 11, 2008. The
Directors wish to record their gratitude and appreciation for the wise
counsel and contribution by Mr. Kumar Jayant during his tenure as a
Director of the Company.

Mrs. Hema Ravichandar was appointed as an Additional Director of the
Company with effect from March 30, 2009. Member's attention is drawn to
Item No. 7 of the Notice for her appointment as a Director of the Company.

Mr. R. Poornalingam was appointed as an Additional Director of the Company
with effect from March 30, 2009. Member's attention is drawn to Item No. 8
of the Notice for his appointment as a Director of the Company.

Mrs. Anita Praveen, IAS, Chairperson & Managing Director of Tamilnadu
Industrial Development Corporation Ltd. (TIDCO) was appointed as an
Additional Director of the Company on June 1, 2009. Member's attention is
drawn to Item No. 9 of the Notice for her appointment as a Director of the
Company.

Mr. S. Ramasundaram, IAS, Chairman & Managing Director, nominee Director of
TIDCO resigned as Director with effect from May 11, 2009. The Directors
wish to record their gratitude and appreciation for the wise counsel and
contribution by Mr. S. Ramasundaram during his tenure as a Director of the
Company.

Mr. F.K. Kavarana who had been a Director on the Board of the Company for
over 16years, resigned with effect from March 31, 2009. Mr. Kavarana had to
step down as Director to enable the Company to reconstitute the Board in
order to comply with the revised Clause 49 (1A) of the Listing Agreement
which stipulated that at least 50% of the Board strength should comprise of
Independent Directors where the Chairman is Non-Executive and related to
the Promoter.

Your Directors wish to record their appreciation for the wise counsel and
contribution by Mr. F K. Kavarana during his long-tenure as a Director of
the Company.

Directors' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors'
based on the representations received from the operating management confirm
that:

1. in the preparation of the annual accounts, the applicable accounting
standards have been followed and that there are no material departures;

2. they have in the selection of the accounting policies, consulted the
statutory auditors and have applied them consistently and made judgments
and estimates that are reasonable and prudent so as to give a true and fair
view of the state of affairs of the Company at the end of the financial
year and of the profit of the Company for that period;

3. they have taken proper and sufficient care, to the best of their
knowledge and ability, for the maintenance of adequate accounting records
in accordance with the provisions of the Companies Act, 1956, for
safeguarding the assets of the Company and for preventing and detecting
fraud and other irregularities;

4. they have prepared the annual accounts on a going concern basis.

Acknowledgements

Your Directors wish to place on record their appreciation of the support
which the Company has received from its promoters, lenders, business
associates including distributors, vendors and customers, the press and the
employees of the Company.

Particulars of Employees

Information required to be provided under Section 217(2A) of the Companies
Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975,
forms part of this report.

Annexures

Required information as per section 217(1)(e) and 217(2A) of the Companies
Act, 1956 are annexed.

Auditors

Members will be requested at the Annual General Meeting to appoint auditors
for the current year and pass resolutions per Item No. 10 of the Notice.

On behalf of the Board of Directors,

M.F. Farooqui
Chairman

Place: Bangalore,
Date : June 10, 2009

Annexure to the Directors' Report

Particulars pursuant to Companies (Disclosure of particulars in the Report
of Board of Directors) Rules, 1988

Conservation of Energy

The Company has successfully implemented various energy conservation
projects with state of art equipment and technology in the areas of
lighting, vacuum system, air-conditioning and process water
cooling/evaporation systems at its watch manufacturing facility. This has
resulted in energy saving of Rs. 38 lakhs during 2008-09.

The Jewellery Division has implemented various energy conservation projects
in the areas of air conditioning, lighting, sewage treatment, reverse
osmosis and gas scrubbing system with the introduction of energy efficient
equipments and technology. These improvements have resulted in a net saving
of Rs. 8.71 lakhs during 2008-09.

Green Power

Your Company is planning to consume around 35% of its energy consumption at
watch manufacturing facility through the renewable energy resources. During
2008- 09, 3.4 million units of energy has been sourced from the private
wind farms which has contributed 30% of the annual energy consumption.
During 2009-10 targeted generation of energy is 4.0 million units and this
will lead to the energy cost reduction to an extent of Rs. 13 lakhs.

Research and Development, Technology Absorption, Adaptation and Innovation

The Company has successfully re-engineered the existing metal movement of
Ca1.7000 series to Hybrid version in collaboration with SEIKO EPSON, JAPAN.
During 2008-09 about 1.0 K movements were assembled and tested for
reliability aspects and found good. During 2009-10 about 500 K production
is being planned.

This hybridization of Ca1.7000 will result in major cost saving at full
potential volume of 3.5 million and thereby enhance the profitability of
movement manufacturing.

The Company has established the additional plating facility with state of
the art physical vapour deposition (PVD) equipment with the salient
features of:

* Bi-color plating in a single set up

* Pulse power supply to the Poly cold unit

* Etch & coat with arc for improved adhesion

* Gas ionizer for improved plasma density & uniform coating.

Watch Division won the Golden Peacock Innovation award - 2008, for
'Development of Micro Precision plastic injection moulding'.

The Jewellery Division has taken an initiative of 'Simplify and Automate'
to respond to the front end requirement at faster rate. Under this
initiative, the Automatic Stone Bagging machine was developed, a first of
its kind in jewellery industry. Automatic stone counting machine and
diamond inscription equipment were also installed. The benefits are
reduction in lead time, increase in productivity and customer satisfaction.

The Aerospace unit of Precision Engineering Division (PED) located in
Bangalore has been awarded 'Continuous Improvement Award' from the
Aerospace major UTC group. This is an award for having demonstrated
consistent improvements and innovations in various processes and Quality
Systems.

* Developed over 100 parts with complex machining of difficult to handle
materials like Titanium, Inconel, Monel, etc.

* Developed super finishing technology for flat surfaces up to two light
band level (0.6 micron) having a surface finish accuracy of 0.1 micron -A
requirement for making special valve assemblies used in oil and gas
industry.

* Several innovative processes have been developed to achieve high speed
drilling with a challenging length to diameter ratio of up to 40.

* Development of special testing equipments for quality checking using load
cells to validate the fitting conditions of pointers used in automotive
industry.

* Development of special program for checking and validating LIN (Local
Interactive Network) functions such as automatic setting of Time, for
application in automotive clocks supplied to Aston Martin.

The Machine Building & Automation Solutions group of PED has introduced new
technologies such as:

* Robotic wafer handling system deploying Bernoulli free floating gripper
for handling delicate & fragile silicon wafers used in solar industry.

* An unique bottom up servo press for easy and quick change over
of Tools,Jigs and fixtures. (0.5 minutes compared to a normal 5 minutes.)

* High speed multi-point grease dispensing deploying SCARA robotic arms.

Environment Management System - ISO 14001

The Company's Watch manufacturing facilities at Hosur, Dehradun, Baddi,
Roorkee, and Jewellery manufacturing and Precision Engineering facilities
are certified for ISO 14001: 2004 version Environment Management Standards.

The Company's Watch Division won the Golden Peacock Environment Management
Award successively for the fourth year and winner of Gold award from
Greentech Environment Excellence for its commitment and outstanding
achievement on Environment Management.

The Company's Jewellery Division is certified for ISO 14001:2004 version
Environment Management Standards. The Jewellery Division has ensured that
its process and activities do not affect the environment by upgrading the
Scrubber system in its gold refining process.

Integrated Management System - IMS

To bring synergy and optimize the resource utilization between Quality and
Environmental Management Systems, during 2008-09 your Company has
successfully merged the documentation of both management system into ONE
Integrated Management System (IMS). Your Company's certifying agency M/s.
Indian Register of Quality Systems (IRQS) have successfully audited this
IMS during March 2009 and recommended for Quality and Environmental
Management System Certifications.

Safety Management

Your Company has built safety as an integral part of its business/operation
management.

Clear safety systems and procedures are in place as per statutory norms.
Safety performance is monitored regularly through safety committee, safety
audits and process like safety alert card system, continual training etc.

During the year 2008-09, your Company has taken the following two important
initiatives on safety front:

1. Personal Protective Equipment (PPE) compliance drive titled as 'Safety
moments Happy moments'.

2. Behaviour based safety training to all employees working in
manufacturing units as attitude plays a major role in safety performance.

The Jewellery Division has built safety as integral part of its business
management. All safety systems are in place as per statutory norms. Safety
performance is monitored through safety committee, audits and processes
like safety alert card system, continual training etc.

Foreign Exchange Earnings and Outgo

During the year under review, the Company earned Rs.132.56 crores in
foreign exchange and spent Rs. 1,133.15 crores (including Rs.945.43 crores
for procurement of gold and Rs.7.71 crores on capital imports).

On behalf of the Board of Directors

M.F. Farooqui
Chairman

Place: Bangalore,
Date : June 10, 2009

Management Discussion and Analysis

India Overview

India has been witnessing a phenomenal growth since the last decade and is
still holding its ground in the midst of the current global financial
crisis. What has perhaps developed as a crisis in developed countries, has
manifested itself only as a slowdown for India. As part of the global
economy, India cannot obviously completely escape the effects of slowdown.

Despite this slowdown, the Indian economy is estimated to have grown at
approximately 6.7% in 2008-09 and the Confederation of Indian Industry
estimates the GDP growth in 2009-10 as 6.1%. Agriculture still lags behind
with a sectoral growth forecast of 2.8%, while industry and services growth
estimates are 5% and 7.5% respectively. Further, an averaging of the
leading economic indicators has created a perception that the downturn has
bottomed out and the outlook appears relatively optimistic.

This optimism has been given a huge fillip by the recent election results
which were a complete opposite of the hung parliament forecasted by
skeptics. There are clear pointers to a period of political stability with
reforms getting accelerated in the fields of infrastructure, power,
insurance, banking and the agricultural sector.

However, though the overall scenario is looking good, it must be understood
that the economy has to go through a phase of consolidation, both
domestically and internationally. Cautious optimism for the next two
quarters is advocated by the pundits.

Business Overview

As far as your Company was concerned, in spite of a difficult year engulfed
by a slowdown, the total income grew by almost 27% to Rs. 3,847.72 crore as
compared to the previous year. Profit after taxes stood at Rs. 169.88 crore
as compared to Rs. 158.29 crore in the previous year.

Company-wide and Division-wise figures are illustrated below:

2007-08 2008-09

Total Income 3041 3848
Watches 918 946
Jewellery 2027 2761
Other Products 96 141
Profit after Taxes 158.3 169.9

Watches:

Global Trends in the Watches Industry

During 2008, global production of watches has been estimated at 1.2 billion
numbers. Based on global trade data, it is estimated that the overall
global market for watches declined during the year, led by a lower demand
in large recession-hit markets such as the United States and Japan.
However, many Asian and European markets continued to exhibit good growth
in consumer demand for watches during the year, with Asia being described
as an 'undeniable vector of growth' for the industry.

The premium and luxury end of the global watches market grew during 2008,
albeit at a lower rate. The Swiss watch industry, which holds the centre of
gravity of this segment, grew by 6.7% during the year, compared to a 16.2%
growth achieved during 2007. Growth in this segment was led largely by
resurgence in mechanical and automatic watches, which is now an established
global trend.

The Swatch Group, the global market leader in wrist watches, posted a sales
growth of 4.3% during 2008, despite challenging market conditions. The
global watches industry has taken a cautious view of 2009, given that the
economies of many developed countries are yet to recover.

The Indian Watches Market

The Indian watches market size has been estimated at 43.5 million watches
for the calendar year 2008, which represents a volume growth of around 6%
over the previous year. The premium end of the market continues to grow
significantly faster than the overall market. This portends well for the
future of the industry.

Growth has been led by marketing investments by several global and Indian
Corporations, including your Company. It is relevant to note that over 65
global brands are marketed in India today, and their combined investments
will continue to drive good growths in the years ahead.

Your Company is the dominant market leader in the Indian watches market.
During the year Company managed to increase market share in multi-brand
watch outlets by 2% in terms of value, resulting in 46% market share in
calendar year 2008. In the Company's retail exclusive chain, World of
Titan, sales grew 11% in volume and 18% in value.

This was achieved by a well crafted portfolio of brands - Titan which is
our flagship brand, Titan Raga for women, Titan Zoop for children, Fastrack
for youth, Sonata for the economy market and Xylys, our unique Swiss-made
offering at the premium end of the market. Our strong nationwide reach,
distribution and service network added to our unquestioned leadership. Our
vision of being world-class, innovative, contemporary and building India's
most desirable brands continues to power our growth.

Based on this strong foundation, the watches division of the Company
delivered a healthy profit before interest and taxes of Rs. 138 crores
during 2008-09, and a robust ROCE of over 40%, notwithstanding challenging
market and economic conditions during the second half of the financial
year, and, after down stocking Sonata in the distribution pipe line, in
order to facilitate a change in strategy.

Key Milestones and Areas of Focus

Our watches are now sold in India and 26 countries across the world. Apart
from our dominance in India, we hold strong positions in the mid-priced
segment in many Asian countries.

Our flagship brand Titan was ranked No. 1 amongst all consumer durable
brands in the country, in the Economic Times Annual Survey of India's most
trusted brands. Titan introduced several stunning new collections of
watches during the year, including Raga Diva, Raga Chocolat, Orion and
Titan WWF. Enhancing multiple watch ownership through such innovative new
products remains an important strategic driver for this brand. Titan also
launched Zoop, a sub-brand aimed at the large children's market.

Sonata, our economy brand, continued to remain India's largest watch brand
in terms of volume sales. During the year, Sonata launched Superfibre, its
first significant offering in the sub - Rs. 500 price segment, which is
currently dominated by the largely faceless unorganised sector. This
segment will continue to be a key focus area in future years.

Fastrack, our youth brand, continues to grow rapidly. Apart from its strong
presence in watches and sunglasses, the brand also extended its footprint
to several personal accessories - including bags, belts and wallets -
during the year. Fastrack is already the most exciting brand for Indian
youth, and will continue to envelop them with breakthrough product designs
and innovative marketing campaigns.

Our Swiss-made brand, Xylys, expanded its presence to 44 cities, and grew
its brand awareness and sales volumes significantly.

Our international business in watches took several strategic steps during
the year, including a successful launch in Pakistan, establishment of
exclusive retail stores in Malaysia and focused marketing initiatives in
Vietnam. Sales volumes in international markets saw mixed trends during
2008-09; some countries like Singapore, Malaysia and Dubai which have been
hardest hit by the downturn saw declines, whereas some others like Vietnam
and Saudi Arabia witnessed a quantum leap in growth.

Our 'World of Titan' retail store network, India's finest in the category,
grew to over 265 stores across the country. Similarly, our 'Titan Watch
Care Centres', again the best in its class, increased their presence to 195
locations. We now offer our consumers authorized service facilities in over
725 points nationwide. During the year, we successfully launched a chain of
Fastrack stores, which are focused on youth and to retail all Fastrack
products. We also piloted the first store of a new retail concept called
'Helios', which aims to develop retail space for the rapidly growing
premium and luxury watches market in the country. Helios Stores will
leverage the Company's retailing skills while pioneering the growth of
premium multibrand watch stores in India.

In addition, we continued to forge strong partnerships with modern
departmental stores such as Shoppers' Stop, Pantaloons, Central, Lifestyle,
Westside, Reliance Retail, retail stores of the Aditya Birla group, and
many other emerging hypermarkets and discount stores.

Manufacturing, Sourcing, Technology and Design

During the year, the new assembly unit in Roorke achieved excellent
stability and good growths in production. The parent unit in Hosur
continued to pursue manufacturing excellence on all fronts. We now have a
total installed capacity of approximately 12 million watches per year
across Units in Hosur, Dehradun, Baddi and Roorke.

The Company has now established global sourcing expertise,with a network of
vendors extending from Europe to Asia. The sourcing office at Hong Kong
continued to playa sterling role in spotting new product trends and
delivering new products.

Our technology team, 'Innovedge', delivered many new product concepts and
is working on a range of exciting 'wrist-watch' possibilities for the
future including light powered watches and on a concept of a single watch
with multiple dials.

The Titan Design Studio reinforced its status as one of India's finest
centres of design excellence by introducing 212 new designs in the year.

Achieving good sales growths notwithstanding the current sluggishness in
several sectors of our economy is a key challenge for the year ahead. We
expect volume growth to come under pressure during 2009-10, particularly in
select cities and geographical areas. The opportunity ahead is to strongly
stimulate consumer demand, continue to strengthen our brands and network,
ensure sustained leadership in India, build a respected brand in select
Asian countries and delight millions of our consumers with brilliant
products and excellent service.

Jewellery

The international investment demand for gold, especially Exchange Traded
Funds (ETFs), kept the dollar price of gold rising throughout most of 2008.
This factor, combined with a steadily depreciating rupee, kept the rupee
price of gold at very high levels. On average, the rupee price of gold was
around Rs. 1200/gram for 22k, more than 25% higher than 2007-08 levels.

This had the expected effect on demand by volume. Volumes surged in the
second quarter but the growth rate started falling in the third quarter and
then fell into a decline phase in the fourth quarter. Apart from the price
of gold itself, the general sombre mood was also contributing to this
problem.

However, both the Company's retail brands, Tanishq and Gold Plus, have
established a compelling proposition in the marketplace and were affected
only marginally by these external conditions.

Tanishq sales grew in value by over 30% and studded Jewellery component
grew by about 20%. The decision to link the making charges to gold rate
from April 1, 2008 helped Tanishq deliver the targeted margin in gold
Jewellery. More than 14 new stores, many of them in the 3000 plus square
feet size, helped us to increase sales and entrench ourselves more in some
key markets. A well-coordinated new product programme kept the interest in
the brand high even while filling up key gaps, especially in the wedding
category.

Gold Plus grew by around 90% in value. Nine stores were opened during the
year in 9 towns in 4 States. A big thrust into rural markets, the creation
of the world's largest bangle and the launch of the loyalty programme were
key highlights of the year.

The Integrated Supply Chain operations rose to the challenge of the higher
sales requirement. With minimal investment, all requirements of alignment,
cost and quality were met as per the targets set, thanks to the support of
our able and committed vendor base.

On the back of such a good operational performance and higher gross
contribution, the domestic operations turned in a profit of Rs. 195 crores
before tax and the best ever. Return on capital was in excess of 80% and
operating cash flow of the domestic jewellery operations (before interest),
after adjusting for working capital changes was over Rs.180 crores.

Our first-mover advantage in this industry remains unchallenged. The entry
of other corporate players into Jewellery began with much fanfare, but has
not lived up to the initial hype. Obviously it takes years to acquire the
assets and competencies that we have with us: our brands, network and
business partners on the asset side,and our design, merchandising and
marketing, manufacturing, vendor management and supply chain, and retail
operations and customer management on the capability side.

On the international front after conducting extensive market research over
two years, Tanishq was launched in the United States through two stores,
one in Chicago and the other in New Jersey. These stores were opened only
as a pilot project to assess the future potential. However due to the
severe downturn adversely affecting consumption patterns in the United
States, the Company decided to shut the stores in order to curtail future
losses.

The Company during the year opened premium jewellery stores Zoya, at two
locations i.e. Mumbai and Delhi.

Gold prices continue to be high and volatile and therefore will affect
consumer demand. The year will therefore see subdued growth rates compared
to the previous years and the division will concentrate on margin
improvement through better working capital management and more effective
cost management.

Eyewear

The Eyewear industry in India saw enhanced activity in 2008-09 with new
stores and products being introduced and backed by aggressive promotions.
Titan Industries invested in rapid expansion of its new chain of world-
class optical stores, 'Titan Eye+', reaching a network of 70 stores in over
42 towns nationally by March 2009. Consumer feedback on this new business
has been extremely positive and their expectations from the brand are high.

The eyewear industry is largely unorganized with a few national/regional
optical chains. Competition is intensifying in this business and attracting
the attention of large international and national players. It is estimated
that this industry is growing at 15% per annum. The mid market segment is
growing at a faster rate and is expected to multiply 3 times over the next
5-6 years.

With the growth in organised retail and exposure to international trends,
consumer preferences, shopping patterns and service expectations are
undergoing a sea change. Consumers are beginning to see eyewear as a
fashion accessory, a means to expressing themselves.

Titan Eye+ is well positioned to address the eyewear needs of the entire
family. It has a choice of in-house and international brands, a wide range
of stylish and contemporary products (frames and sunglasses), branded
lenses, contact lenses and eyewear accessories. The Company has introduced
numerous differentiated products, which have been very well received by
consumers. It has invested in stores that offer a unique consumer-friendly
display system and state-of-the-art equipment to ensure error-free eye
testing. The Company has also entered into a technical arrangement with the
highly renowned Sankara Nethralaya for training retail and clinical staff.
This business, which is now in an investment phase with the network getting
established, clocked a turnover of Rs. 28 crores in its first full year of
operations.

In the coming year, given the current market scenario, the Company has
decided to consolidate and focus on building a highly differentiated brand
positioning in the marketplace. The business is also rationalising its cost
structure and leveraging lower rentals prevalent in the market today.

The Company is confident that the eyewear business is clearly a sunrise
industry and will be a strong contributor to the bottom line in the next
five years.

The biggest challenge in the business is to maintain the high service
standards expected by consumers in a service industry. It therefore intends
to invest further in developing the best talent through training and other
developmental initiatives.

Integrated Retail Services

Our Company has evolved over the years and our dreams are becoming
realities in more ways than one. Our goal of achieving a billion dollar
turnover, which seemed distant at one time, is becoming a certainty. So,
while success has blessed us on one hand, the market is experiencing
heightened activity, especially on the retail front. Anyone who has a
control over retail and has global ambitions will clearly deliver market
leadership in the concerned category. Consequently, we reorganised
ourselves last year with the introduction of Integrated Retail Services
Function.

The role of the Integrated Retail Services Group was primarily to provide
the impetus for:

a) Creation of retail infrastructure and network expansion across the prime
retail businesses of the Company, and;

b) Be responsible for training and development of the people connected with
retail Franchisee staff.

This important structural initiative has helped us substantially during the
year 2008-09 when we added 135 stores across all divisions, covering an
additional area of 1.78 lakh square feet of prime retail space. The purpose
of integration was primarily to avoid the duplication of efforts in the
retail area, considering that the Company was increasingly becoming more of
a Retail Organisation.

The establishment of the IRS department has significantly benefited the
Company in the areas of property identification and negotiation, as a set
of people who are aware of the requirements of all the divisions were able
to leverage this knowledge and expertise, to get better terms for the
Company.

In the coming years we see considerable benefits accruing to the Company by
the integration of the Retail services activities.

Precision Engineering

Precision Engineering Division (PED) that operates in the B2B space,
continued to witness growth this year also. PED serves global automotive,
aerospace, telecom and engineering industries with precision engineered
components, sub-assemblies, moulds/tools as well as by providing end-to-end
technology solutions for automation and testing.

PED sustained its momentum on the growth path with revenue of Rs. 76 crore,
representing a growth of 35% over the previous year. A quarter of this was
from addition of 16 new customers most of whom are leaders in their
respective domains.

The aerospace unit, located in Bangalore, won the 'Continuous Improvement
Award' from the international major- UTC Group. A dedicated part
development technology cell was created in the unit, and over 100 new
precision parts were developed for various customers in specialty materials
like Titanium, Monel, Inconel and others.

The Division signed along-term agreement with Hamilton Sunstrand for supply
of precision parts. MOUs were also signed with aerospace majors like
Eurocopter, Snecma to be in readiness for defence offset opportunities. The
Division sustained its impeccable record in all Quality Management Audits -
AS 9100 (Aerospace), TS 16949 (Automotive), ISO 9001 and ISO 14001 (EMS).
The automation solution group has recorded over a hundred percent growth in
revenue and sustained its leadership position in this domain.

Knowledge Management

The Company realises the potential of knowledge and its dissemination among
the employees and hence created three years back, a dedicated Knowledge
Management (KM) team to establish processes and mechanisms to capture,
store, share and use knowledge residing within the Company. The KM team has
built and implemented twelve domain specific Knowledge Portals, to address
key needs of the Watch and Jewellery divisions.

Knowledge documents related to products, processes, people, partners,
projects, performance, policies, assets, customers, technology and
strategies have been categorised and stored in a structured manner for easy
retrieval. Formal knowledge management processes for Eyewear and PED would
be deployed in the current year.

Human Resources

Your Company considers its Human Resources as important assets, which
supports and stand by the Company in times of need and rise to greater
heights to contribute to the organisation. It is proud to have highly
engaged, committed and loyal employees,which we believe, differentiates us
the way we conduct business. As a part of its endeavour to foster an
enabling culture, the Company lays emphasis on talent acquisition, career
and skill development of employees, a highly successful talent management
program, all of which focused on building a leadership pipeline for
fuelling the Company's growth.

Focus on Human Resources is evident in the way the Company's employee
friendly policies are firmly in place; which include a mobility policy,
enabling the individual to fulfil his/her career aspirations within the
Company and also an Education Policy supporting further education through
the Executive MBA in association with an institute of repute.

During the year the Company engaged reputed consultants to carry out
productivity studies and understand role redundancies, which have come in
good stead for redeployment in times of need by other businesses/functions
thereby reducing market recruitment.

During the lean production months, the focus was on capability building,
multiskilling and also deployment across the front end for sales
activities. This has not only kept the morale of people up but also enabled
effective engagement during lean production periods during the last quarter
of the year.

For the first time, the Company engaged the services of Gallup to conduct
Employee satisfaction/Engagement studies and has come out with flying
colours. The engagement index at Titan of 5.25:1 is by far one of the best
in the country and also in the top quartile of Gallup Global engagement
levels.

We have also been rated among the top 25 in the survey conducted by 'Great
Place to work Institute' in collaboration with ET, as well as the top in
the Retail category which is a commendable outcome in the first year of its
application itself.

During the year 2008-09, 634 new employees joined the Company, of which, a
significant addition was towards the newly found Eyewear Division.
Attrition during the year was 7.5%, lower than the industry average.
Considering the rapid growth of retail sector in the country, a
comprehensive Organisation Structure and Retention Strategy has been
implemented. As of March 31, 2009, the Company had 4,182 employees on its
rolls of which 2,660 were in the factories, 434 in the Corporate Office and
1,088 in the regional offices.

Industrial Relations across all manufacturing units continue to be very
cordial and favourable. Employee participation in various engagements such
as business plan communication, small group activities, safety forums have
significantly increased last year. In fact during the year 2008-09 the
employee participation in Small Group Activity, totalling 205 has been the
best in recent years.

How the Company fared

The Company achieved a growth of 27% in sales turnover and profit before
taxes went up by 14% over the previous year after accounting for Rs. 29.02
crores for closure of two Tanishq boutiques in US and Rs. 7.90 crores
towards accelerated depreciation on furniture and fixtures. Net profit
after taxes grew by 6% over the previous year.

Some of the key financial indicators of the Company are as under:

2008-09 2007-08 2006-07 2005-06

Sales to Net fixed assets No. of times 13.09 10.77 8.00 7.56
Sales to Debtors No. of times 36.22 31.53 23.21 16.44
Sales to Invento No. of times 3.20 2.98 3.15 3.96
Retained Earnings - Rupees in crores 115.08 108.72 67.72 55.33
% of Net Profit for the ear 72.4% 72.4% 71.9% 75.2%
Operating Return on Capital Employed * 34.2% 34.8% 30.7% 24.0%
Return on Capital Employed (EBIT) 34.2% 34.8% 25.8% 19.5%
Return on Net Worth 32.2% 39.4% 36.0% 42.8%

* excluding exceptional items

Some Risks and Concerns

Risks across product categories viz., Watches, Jewellery and Prescription
Eye-wear.

All the aforesaid businesses are consumer led businesses and the retail
network expansion is carried out through franchisees at the front end. This
is an efficient way to expand rather than having Company owned/managed
showrooms which is a costlier option. The relationships have to be actively
managed to pre-empt shifting of loyalties of these franchisees to other
product category brands/brands within these categories.

The Company is seeking to address the risk by maintaining a high level of
engagement with the Franchisees and addressing their reasonable business
requirements in an empathetic manner, via, both contractual arrangements
and day to day interface with these business associates. The fair and
equitable approach has been the key factor in maintaining win-win
relationships with these Business Associates.

The economic slowdown encountered in the second half of the year was felt
more acutely in the last quarter of the Financial Year 2008-09 when the
effect on top-line was felt. The Company has cascaded as response measures,
a slew of initiatives aimed at cost control and efficiency across
businesses and across functions. The close monitoring of the cash flow on
day to day basis and minimizing the cash to cash cycle time and even
sharper focus on cash generation has been a desirable outcome of the
recessionary trend in the economy.

Watches

The large grey market continues to plague the Watch Industry and the
Company has taken on the challenge by introducing Sonata variants at the
low end. The Super Fibre watch from the Sonata stable is priced at Rs.275/-
which is a great product offering targeted to gain market share from the
grey market segment.

The Company is conscious of the high cost structure of captive
manufacturing facilities, (mainly at Hosur) which are primarily
attributable to the historical high wage cost at these facilities. The
Company has taken up initiatives such as lean manufacturing and has
increased the outsourcing of most components other than critical ones in
watch manufacturing.

The threat to the product category of watches as a time keeping device due
to the pervasive and increasing use of the mobile phone is a risk and the
Company is seeking to address this by positioning watches as a personal
accessory and by ensuring launch of new collections to choose from, and
this message is emphasised in all its market and consumer communications.

Jewellery

Gold price volatility and rising gold prices continue to be a concern this
year as well. The industry demand in the quarter ending March 2009 has been
the lowest in recent times. The Jewellery Division however, did well in
combating the general sentiment by activations and schemes in the last
quarter.

Competition (both local and regional) is intensifying by the day and
regional players are consolidating their presence by expanding their
network within regions. The local jewellers play the game by reducing the
making charges and offering discounts to the day's rate of gold. The few
national players in the studded segment are also adopting novel ways to
attract the end customer by pricing discounts which are affordable in the
long run only if the players take a view on gold price and buy at dips. Our
Company being a listed entity serving many stakeholders and self imposed
rigors of governance, cannot take a risk on gold prices and hence actively
hedges its position on a day to day basis. The gold prices are derived from
the quotes at international bourses and from the Reuters/ Bloomberg screens
and no discount on the day's prevailing price is offered. This limits the
Company's options in terms of price attractiveness to customers who are
cost conscious. The Company continues to build on its brand strength and
key differentiators in terms of purity and designs to drive traffic to
Tanishq stores.

The Gold on loan facility being availed from the International and local
banks is a loan facility the availability and terms of availability of
which are susceptible to the international credit and currency markets and
related risk perceptions. The scaling up of operations in Tanishq is to an
extent predicated on the availability of Gold on Loan on sub libor terms.
Any world-wide contraction of credit or increase in risk perception would
limit both the availability and pricing of this facility.

Eye-wear

The industry is highly fragmented and the entry of new players in the
segment cannot be ruled out as there are very few entry barriers. Your
Company has been successful in rolling out the Titan Eye + in 42
cities/towns.

The risks of outsourcing as a sourcing option, is a factor to reckon with
in this business. Moreover as the procurement of frames is mostly by US$
inputs, the INR: USD parity would affect the margins. This would be
partially mitigated by the Company's plan of setting up its own lens
manufacturing/grinding facility near Bangalore in Karnataka.

Precision Engineering Division

The general slowdown internationally and in the segments in which the
machined components/sub assemblies the division operates i.e. the Areospace
and the Automotive segments has affected the business in the last quarter
of the FY 08-09 and would do in the current year also.

The high capital intensity of the business may limit its growth in the
near term and the Division is actively adopting lean manufacturing approach
to mitigate this risk.

The Machine Building & Automation segment of this business, is least
capital intensive and does not have this limitation; but as the capital
goods sector has been sluggish in the recent past, this business may not
escape the trend in the current year as well.

The Company may also consider the option of restructuring and/or a revised
ownership structure for the Machined Components Business in the long run to
drive focus to this business.

Internal Controls

The Company's internal audit system is geared towards ensuring adequate
internal controls to meet the increasing size and complexity of business
and for safeguarding the assets of the Company. The internal audit program
focuses primarily on systems and operational audit aiming at monitoring
compliance with defined procedures and continuous upgrade of controls. This
process enables reporting of significant audit observations to the Audit
Committee. The Audit Committee reviews the audit observations and follows
up on the implementation through action taken reports. The Committee
recommends on risk mitigation plans and control activities, including the
policies and procedures, to address risk-prone areas through its
observations which are acted upon by the Management.

During the year, the Delegation of Authority has been revisited to further
strengthen internal controls and the approval processes across
divisions/departments. The Company had also taken steps to raise the levels
of authority for spending and commitments - by one level up - to prioritize
cash retention in the context of the global financial crisis.

The Company has been running well-known ERP systems like SAP and ORACLE to
take care of back-end processes for the past several years.

These systems come with their own authorisation systems and extensive
controls. During the year, the Company has implemented an end-to-end
Industry-specific SAP Solution for the Eye Wear business. In addition, the
Jewellery division has rolled out an application to synchronize Point of
Sale data and integrate them with the back-end ERP application, thereby
enhancing operational controls.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the
Company's objectives, projections, estimates and expectations may be
forward-looking statements within the meaning of applicable securities laws
and regulations. Actual results could differ materially from those
expressed or implied. Important factors that could make a difference to the
Company's operations include, among others, economic conditions affecting
demand/supply and price conditions in the domestic and overseas markets in
which the Company operates, changes in the Government regulations, tax laws
and other statutes and incidental factors.