Titan Industries. CMP: INR222 TP: INR220 Neutral

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1 BSE SENSEX S&P CNX 17,257 5,241 Bloomberg TTAN IN Equity Shares (m) Week Range (INR) 255/154 1,6,12 Rel. Perf. (%) -1/13/3 M.Cap. (Rs b) M.Cap. (US$ b) August QFY13 Results Update Sector: Retail Titan Industries CMP: INR222 TP: INR220 Neutral Titan Industries (TTAN) posted lower than expected numbers for 1QFY13. Performance was weak for both Jewelry and Watches. Adjusted PAT for the quarter was INR1.6b against our estimate of INR1.8b. Jewelry volumes declined 21% due to high gold prices and slowdown in consumer demand. Sales grew 8% and EBIT grew 9%; margins remained flat YoY at 10.2%. Watch business reported 14% sales growth (3% decline in volumes) while Eyewear sales grew 6% though liketo-like (LTL) sales growth was just 1%. PE (Precision Engineering) business continued to be profitable. The management indicated aggressive store expansion plan for FY Fastrack stores and 35 Helios stores. Jewelry volumes have suffered due to high gold prices and weak consumer sentiment due to high inflationary environment. We have been cautious on the volume growth scenario in the Jewelry business. However, we are positive on TTAN's store expansion strategy to drive volumes. This will work in favor of the company due to the franchisee model. Our estimates are under review. The stock trades at 27.5x FY13E and 22.2x FY14E EPS. Maintain Neutral. Sreekanth P.V.S. (Sreekanth.P@MotilalOswal.com); Investors are advised to refer through disclosures made at the end of the Research Report.

2 Jewelry: Volumes decline 21%; margins remain flat YoY, studded share declines; estimated jewelry market decline at ~40% Jewelry sales increased 8% to INR17.7b; EBIT grew 8.7% to INR1.8b; EBIT margin remained flat to 10.2%. Studded jewelry proportion declined to 25% (32% in 4QFY12). Jewelry volumes declined 21%; LTL sales growth in Tanishq was 3% (25% in 4Q) while it declined for GoldPlus by 8% (23% in 4Q). 32% YoY higher Gold prices and poor consumer sentiment impacted the demand conditions. TTAN added 5 World of Titan stores and 8 Fastrack stores during the quarter. Customer decline during the quarter stood at 2.4%, however ticket size increased by 11%. Studded jewelry sales grew by 22% in 1QFY13. Segmental performance: 4QFY12 Jewelry margins cross 10%; watch sales increase 27% YoY INR m 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 Total Sales 12,584 15,428 19,633 17,662 20,400 21,138 24,632 23,055 22,258 Watches YoY Growth (%) 21.8% 21.6% 35.6% 15.6% 24.2% 16.1% 17.2% 27.0% 14.4% Jewellery 9,505 11,274 15,808 13,617 16,471 16,312 19,859 17,997 17,755 YoY Growth (%) Others YoY Growth (%) Total EBIT 1,116 1,754 2,051 1,039 2,106 2,157 2,316 2,310 2,293 Watches YoY Growth (%) EBIT Margin (%) Jewellery 683 1,026 1,500 1,073 1,661 1,499 1,785 1,823 1,806 YoY Growth (%) EBIT Margin (%) Others (99) (36) (14) 51 (47) (16) Jewelry volumes decline 21% YoY continuous decline in jewelry volumes due to high gold prices 2 August

3 LTL sales growth slows down; Gold Plus performance disappointing Jewelry 2QFY12 3QFY12 4QFY12 1QFY13 Tanishq GoldPlus Tanishq GoldPlus Tanishq GoldPlus Tanishq GoldPlus Sales Gr % (1) LTL Growth % (8) Stores Jewelry volumes decline 21% Jewelry 2QFY12 3QFY12 4QFY12 1QFY13 Volume Gr % 3 (5) (7) (21) Customer Gr % 8 4 (2) Studded Share % Sales Gr % Watches: 14% sales growth; volume decline 3%; margins decline 130bp YoY 1QFY13 Watch sales increased 14% YoY to INR3.6b; volume decline by 3% (14% growth in 4QFY12). World of Titan and large format stores reported muted increase in LTL sales growth; Helios and Fastrack reported double digit growth in LTL sales growth. World of Titan sales increased 14%, Fastrack sales increased 86% and Helios sales increased 177%. Like to like growth in World of Titan was 9% (18% in 4QFY12), in Helios at 19% (-9% in 4QFY12) and in Fastrack at 12% (16% in 4QFY12). Large format watch stores posted a 3% increase in LTL sales growth (19% in 4QFY12). EBIT margins declined 130bp YoY due to a 2% increase in excise duty despite price hikes. Watch sales growth picks up; aggressive expansion plans across format Watches 2QFY12 3QFY12 4QFY12 1QFY13 Sales LTL Stores Sales LTL Stores Sales LTL Stores Sales LTL Stores (x) (x) (x) (x) World of Titan Helios (9) Fastrack LFS - Watches NA 24 (1) NA NA 23 3 NA Sales Gr Volume Growth (3) Eyewear sales up 6%; EBIT losses reduce to INR16mn; PE business profitable Others reported 16% increase in sales and EBIT of INR-16m with losses in accessories and Eyewear even as PE business continued to grow profitably. Eyewear reported 6% sales growth with LTL sales growth of 1%. Titan Eye+ LTL sales up due to promotions 2QFY12 3QFY12 4QFY12 1QFY13 Stores Sales Gr% LTL Gr % (19) 26 (1) 1 2 August

4 Valuation and view We remain cautious on the volume growth scenario in the Jewelry business. We are lowering our earnings estimates by 4-8% for FY13 and FY14 to factor in lower jewelry volumes and watch sales. We believe demand would remain subdued in both the segments in the coming quarters. However, we are positive on TTAN's store expansion strategy to drive volumes. This will work in favor of the company due to the franchisee model. The stock trades at 27.5x FY13E and 22.2x FY14E EPS. Maintain Neutral. 2 August

5 Titan Industries: an investment profile Company description Titan is one of the largest specialty retailers in India. The company is a market leader in watches and a pioneer in the branded jewelry market. The company's economy segment watch 'Sonata' is the largest selling watch in the country. Titan entered the branded jewelry segment in 1996 with the Tanishq brand and continues to be the largest player in this segment. Key investment arguments Titan is a market leader in the organized segment of the domestic watch industry with ~60% market share. The branded watch retailing segment is expected to report strong growth given that 60% of the watch retailing industry is dominated by the unorganized segment. Tanishq, Titan's branded jewelry brand, is the largest player in the Rs70b branded jewelry market in India. Branded jewelry accounts for less than 10% of the total jewelry market in India and is expected to report 40% CAGR over the next 5 years. Operating margins are expected to expand, as fiscal benefits from units in backward areas and aggressive cost cutting initiatives undertaken by the company yield results. Key investment risks Rise in gold prices would impact volume growth in Jewelry division impacting the margins. Longer than expected break even period of Titan Eye+ is likely to strain profitability of the company. Recent developments TTAN added 5 World of Titan stores and 8 Fastrack stores during the quarter. Valuation and view We are cutting FY13 and FY14 estimates by 4-8% to INR8.1 in FY13 and INR10 in FY14. The stock trades at 27.5x FY13E and 22.2x FY14E EPS. Maintain Neutral. Sector view We believe specialty retailers are better placed to ward off the impact of the current slowdown. Ability to generate cash flows to adequately finance expansion plans put them in a better position. Comparative valuations Titan Shoppers Inds. Stop P/E (x) FY13E FY14E EV/EBITDA (x) FY13E FY14E EV/Sales (x) FY13E FY14E P/BV (x) FY13E FY14E EPS: MOSL forecast v/s consensus (INR) MOSL Consensus Variation Forecast Forecast (%) FY FY Target Price and Recommendation Current Target Upside Reco. Price (INR) Price (INR) (%) Neutral Stock performance (1 year) Shareholding pattern (%) Jun-12 Mar-12 Jun-11 Promoter Domestic Inst Foreign Others August

6 Financials and valuations 2 August

7 N O T E S 2 August

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