Titan - The Joy of Gifting


Company Name – Titan Company Limited (Titan)


Current Share Price – INR 2,521 (April 1, 2022)


Market Cap – INR 2,23,798 cr


 

1. What is interesting about the stock?

Whenever we are looking to gift someone near and dear to us on a special occasion like a wedding, retirement, 30th birthday, 10th wedding anniversary and others, we want to go beyond the regular gifting options of chocolates and flowers. We are then looking for a gift that will represent quality and will always remind the receiver of our appreciation and special bond with them.

This is the premise upon which the watch Titan has built its brand legacy. “The Joy of Gifting” was their tagline where they differentiated themselves from the market which was saturated with common HMT watches. This also represents the company’s immense capability in building brands which led them to numerous marketing masterstrokes like using a famous Western Classical music piece by Mozart to become a timeless jingle that will forever represent the brand in the Indian consumer consciousness.


Titan has similarly also built the jewelry behemoth Tanishq, which has quickly grown to become the biggest brand in Indian jewelry and an irreplaceable player in its industry. Tanishq is now associated with the highest standards in the jewelry industry and has cemented its brand influence as a prime gifting choice to women on special occasions like weddings, work promotions, Diwali and many others.


Today Titan is one of the largest luxury product makers in India with a presence across many high profile segments like watches, jewelry, eyewear, fragrances, and Indian dress wear. Titan runs Tanishq which is the largest jewelry brand in India and it is also the 5th largest watchmaker in the world.


The Company was formed as a joint venture between the Tata Group and Tamilnadu Industrial Development Corporation (TIDCO). They are the 2 biggest shareholders in the company as well with 25% & 28% stakes in Titan respectively.


Titan is also recognized as one of the best investments of ace investor Rakesh Jhunjhunwala who holds ~5% of the company as of December 2021. LIC also owns ~4% of the company as well. Titan is also part of the major market indices of India, S&P BSE Sensex and CNX NIFTY 50 highlighting its status as one of the top corporates in India.


The Company has over 2,064 stores in India as of December 2021, employing over 9,200 people. It also has a presence in over 7,000 multi-brand watch stores and has 5 main design canters across Bengaluru, Hosur and Hyderabad.

It has manufacturing sites across India in Hosur, Coimbatore, Pantnagar, Roorkee, Chikkaballapur and Sikkim for Watches, Jewelry and Eyewear.


The company has 4 main segments which are:

  • Watches & Wearables: Selling major in-house brands (Titan, Sonata, Fastrack, Raga, Octane and Xylys) and many international brands. Also operates 3 multi-brand watch store formats World of Titan, Fastrack and Helios.

  • Jewelry: Selling Jewelry through physical stores and online through Tanishq, Zoya, Mia and CaratLane Brands.

  • Eyewear: Operates India’s largest optical retail chain through the Titan EyePlus brand.

  • Others (Fragrances & Indian Dress Wear): Operates Skinn Fragrance brand and Taniera Saree brand

The Company has various brands across these products across different market segments such as:

The FY21 revenue (INR 20,067 cr) distribution of Titan across its various product segments was:

  • Watches – INR 1,529 cr

  • Jewelry – INR 17,745 cr

  • Eyewear – INR 361 cr

  • Others – INR 432 cr

Over 88% of FY21 revenues were from the Jewelry segment mostly under the Tanishq brand, which is the market leader in the branded Indian Jewelry segment with a 6% market share.


The company also has 2 key subsidiaries which are:

  • Titan Engineering & Automation (Wholly Owned): Providing engineering and automation services

  • CaratLane (72.3% Owned): Omnichannel Jewelry Retailer

Industry Overview


The Gems & Jewelry industry is a critical industry sector in India contributing to 27% of the global jewelry demand in 2019. The market size of the global gems and jewelry sector is expected to reach USD 103 billion by 2023.


India’s gems and jewelry exports are expected to reach USD 100 billion by 2025 from USD 25 billion in 2021.


Key drivers for the growth of the jewelry sector in India are:

  • High domestic demand due to social and cultural factors. Rising middle-class population & rising income levels

  • 100% FDI in the sector. 10 SEZs for the sector alone with over 500 manufacturing units accounting for 30% of India’s exports

  • Competitive labor cost and established industry

  • Online jewelry retailing

  • Rise of parallel industries like the Gold Loan Industry

The major listed rivals of Titan are:

  • Rajesh Exports

  • Kalyan Jewellers

Key MOATs

  • Brand - The biggest strength of Titan is its brand-building capability. It has successfully established the Titan brand as well as Tanishq synonymous with watches and jewelry respectively

  • Market Leadership - Titan has a market-leading position in the jewelry, watch and eyewear sectors and the strength of its flagship brands. Tanishq is the most recognizable jewelry brand in India with over 382 stores across 231 cities and towns in India.

  • Similarly, the company has over 809 watch stores with many recognizable brands like Sonata, Fastrack and Raga highlighting its brand strength in this segment. The Company also has the largest optical retail chain in the country, Titan Eye+, which has 682 stores in 276 cities and towns in India. This provides it with a big share of the ever-growing eyewear market in India

  • Strong Cashflow generation - The company’s jewelry business is a cash generator, which is a high growth business itself and generates enough capital for the company to the expansion of its other business segments.

  • Corporate Governance - The association with the Tata Group also provides the company with good corporate governance and operating structure as well as access to the large capital reserves of the Group

  • Strong Financial position - Given the scale of operations, the Company can generate industry-leading margins and RoE which was at an average of 24% in the last 10 years, despite the hit from the COVID-19 pandemic in FY21. This highlights the massive advantage Titan has over its peers due to its size and scale of operations.


2. Key Historical Financials

The company has grown its sales at a 14% CAGR in the last 5 years and has seen PAT grow at a CAGR of 7% in the same period. The jewelry segment, however, has grown with a 26% CAGR in the last 2 years while the other segments have grown at a CAGR of 6-8% in the same period.


3. What is my view on Company valuation?


Titan has seen a rise in its share price of ~5x in the last 5 years vs the CNX NIFTY 50 Index which has risen ~85% in the same period.


Meanwhile, its listed rivals Rajesh Exports and Kalyan Jewellers have grown only 27% & -20% in the last 5 years.


The Company currently trades at a P/E (TTM) of 100x vs 17x of Rajesh Exports, & 28x of Kalyan. It also trades significantly higher than the industry P/E of ~35 times.


In terms of EV/EBITDA, Titan is trading at close to 64x vs 15x of Rajesh Exports, & 11x of Kalyan.


The wide difference in valuation metrics highlights the dominance of Titan in the jewellery segment and the added premium of other business segments of eyewear and watches.


The Company is expected to maintain its current momentum with the global jewellery sector getting back on track after COVID-19. Titan’s growth is also expected to easily outpace the industry growth given its dominant market positioning and its wide scale of operations vs the rest of the industry. Thus, Titan can be expected to maintain a robust revenue growth rate of ~20%.


Although the Company is worth looking into and has very strong business fundamentals with robust MOATs, the valuation seems to be on the higher side. Investors can evaluate entering the stock at lower levels.


4. What are the risks to the investment analysis?


Risks to the analysis are:

  • The vast majority of Titan’s business comes from the jewelry segment and thus it is exposed to all the risks including regulatory risks involved with the segment. For example, if higher import duty is applied on the import of precious metals, it will increase the procurement costs of the company and hurt its overall performance

  • The segment remains highly competitive with many other regional players making the transition to national brands like Malabar Jewellers, PC Jewellers and others. Given the wide usage of hallmarking and standardizing of the industry benchmarks, the brand trust and reliability moat of Titan may not be as effective as in the past

  • The original business of Titan, watches, has seen very slow growth in the recent past with watches being seen more as a luxury and lifestyle item, rather than an everyday use item. Although this increases the margin profile of this business, it reduces the addressable market a lot. But Titan is looking at ways to mitigate this movement by venturing into wearables which are widely expected to evolve into a separate market segment of its own and grow exponentially

  • Titan has always been bold with its marketing choices and sometimes they may backfire thereby, damaging the brand and the overall business performance

 

About the Author


I have over 6 years of experience in the Investment sector and have been an active prop trader in European Bond Futures in the past. Currently I am working as head of Research at Smart Sync Services where we are working on simplifying and expanding financial and investment knowledge to make the investment world as accessible for everyday investors as much as possible.


I graduated from the Master of Finance Program from Cambridge University in 2016 after completing my Bachelor of Engineering program from Jadavpur University, Kolkata in 2011.


I am an insignificant public investor & have avid interest in following emerging trends both in technology and other fast evolving sectors. I am also a lifelong learner and relish the chance to learn something new all the time.


Disclosure


I have no stock, option or similar derivative position in any of the companies mentioned since last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.


I am not a SEBI registered advisor. This article is purely for educational purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.


I have used publicly available information while writing this article.




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