The Hindu Business Line : Titan Industries: Hold

THE STOCK of Titan Industries has appreciated 30 per cent over the past month alone. Despite the sharp spurt, shareholders can retain their holdings in the stock.

Titan has made a comeback in terms of performance over the past two years, on the back of strong revenue growth in its jewellery business, better utilisation of working capital and savings in interest cost.

Adjusted for extraordinary items, the stock trades at about 35 times its FY-05 earnings. These valuations appear sustainable, given the bright earnings prospects.

A strong brand name in the watches business, a growing presence in the jewellery market and a new focus on fashion accessories and precision engineering are likely to ensure steady revenue growth.

A further cut in interest cost is also likely, as the company has taken active steps to prune its debt. An expansion in equity to fund its expansion plans is also in the offing, which could improve the company's gearing.

If Titan chooses to make a rights offer, shareholders may get an opportunity to enter the stock at a more attractive price.

Extraordinary items in the form of provisions have made a recurring appearance in the company's financial statements over the past three years, as it wrote-off losses amounting to £9 million that it suffered in its European operations. With the entire loss written-off, the earnings are likely to improve substantially.

Titan has seen a steady double-digit growth in revenues over the past two years. Tanishq, its jewellery business, has emerged a significant contributor to revenues, now accounting for almost half of revenues. With a strong retail network and a focus on contemporary designs, Tanishq has managed to make considerable headway in a traditional and mature markets.

It, however, remains a low-margin business. Despite a healthy contribution to revenues, it accounts for only 25 per cent of Titan's profits. The growing contribution of the diamond jewellery to the product mix could see margins improve, but not substantially.

The watches segment has seen a relatively modest revenue growth. Titan has a strong presence in the mass market with its brand, Sonata, giving unorganised players a run for their money.

Apart from this, Titan has several sub-brands such as Raga, Edge and Steel straddling various price-points and aimed at different segments.

FasTrack, its trendy brand targeted at the youth, has been re-launched. Titan is also introducing Xylus, a product for the luxury segment, which would take on premium Swiss watches.

This foray is likely to involve considerable expenditure on brand-building, if Titan hopes to make a significant dent on the premium market.

An expansion in its watches capacity and outsourcing to tax-free zones are likely to improve revenue and earnings growth.

Titan's other ventures in precision engineering and fashion accessories are also likely to provide additional revenue streams.

The precision engineering division is a supplier of dashboard analog clocks to Ford for its manufacturing bases in Europe, the US and Canada.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Investment quiz

Bajaj Discover elegant design & sturdy

Lack of long-term funds — Chink in the market structure

MF score-card in Q2 — HDFC, SBI Mutual see major action

Fertiliser majors seek greener pastures abroad

No piggybacking on diplomatic immunity

Taurus Discovery Stock: Hold (high-risk)