Financial Daily from THE HINDU group of publications
Sunday, Sep 15, 2002
Financial Daily from THE HINDU group of publications Sunday, Sep 15, 2002 |
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Investment World
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Industry Analysis Markets - Recommendation Industry & Economy - Watches & Accessories No titans here Sowmya Krishnan
THE prospects for the watch industry do not appear good given the sluggish growth rates and the tough competition among players. Titan, Timex and HMT are the only organised, listed, players in the watch industry. Of the three, Titan is the only profit-making company. Both HMT Watches and Timex are not in very good shape. HMT has lost market share over the years and is all set to be hived off to a strategic partner. Titan now trades at around Rs 62 and is the only stock that can be considered for investment.
Timex Watches, a subsidiary of Timex Watches BV, is yet to turn around. For the year ended March 2002, it managed to prune its losses from Rs 47.55 crore to Rs 25.12 crore. Timex struggled to create its own distribution network after breaking its tie up with Titan. Its sales dwindled during this period. Given its sizeable debt burden, huge accumulated losses, lack of operating efficiencies and slow growth of the watch market, a financial turnaround does not appear a near-term possibility. The foreign promoter has infused Rs 37 crore into the company and raised its stake to over 80 per cent. Timex has now set up its own distribution channels and is gaining market share. However, considering its poor financial shape, investment need not be considered in the stock. Titan is also struggling in its watch business. For the year ended March 2002, its turnover from the watch business slid 7 per cent to Rs 457.12 crore. However, the picture looks better for this year over last year. For the June 2002 quarter, the turnover rose 11 per cent to Rs 113.48 crore. Given the slow growth of the market and the tough competition, the watch business may not be a major growth driver in the future.
Titan's jewellery business, on the other hand, has started to look up. Sales jumped 31.3 per cent for the year ended March 2002 to Rs 267.66 crore compared to last year. But its contribution to the profits was a meagre Rs 2.34 crore. While the jewellery business could be the major growth driver, its contribution to the bottomline would be limited due to low operating margins (around 5.5 per cent for March 2002). The high leverage is another concern for Titan. It is working on options to reduce its leverage but nothing concrete has emerged as of now. Interest costs constitute close to 54 per cent of its operating profits. Moreover, its investments in the European operations have been a drag on the company's resources. Accumulated losses for the European subsidiary stood at £9 million. It has restructured its European operations and is now concentrating on a focussed market. During the year, Titan's share price almost doubled to Rs 62. Given its focussed business approach and bright prospects for the jewellery business, the company might look up in the long term. Investors with a two-year horizon can consider an exposure to the stock.
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