Titan Company - result update-Oct-15-EDEL - Myirisbreport.myiris.com/ES1/TITINDUS_20151030.pdf · Titan Company’s (Titan) Q2FY16 revenue (down 25.6% YoY on very high base ... initial

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Titan Company’s (Titan) Q2FY16 revenue (down 25.6% YoY on very high base of 54% YoY growth) came in line, while PAT (dipped 39.4% YoY) came slightly below expectations. Key positives: (i) maintained gross margin in jewellery business despite lower studded share (24% versus 35% in Q2FY15) and cut in making charges (overall gross margin expanded 150bps YoY); (ii) 16 quarter high margin in watches at 15.3% led by better cost management and postponement of A&P expenses; and (iii) 14% YoY spurt in Helios (premium watches) format (highest in 5 quarters) and 8% YoY growth in large stores signaling premiumisation in watches. Key negative was 314bps dip in jewellery EBIT margin led by lower operating leverage and fall in studded share due to advancement of promotions in studded jewellery to Q1FY16. H2FY16 will see significant growth led by lower base (jewellery sales dipped 2.2% YoY), GHS redemption and encouraging festive season. Maintain ‘BUY’.

Lower growth impacts margin; online hurting watches and eyewear

Absence of GHS in Q2FY16 led to 32.4% YoY dip in jewellery sales. Lower studded share

due to early promotions of studded jewellery in Q1FY16 also impacted margin. Soft LTL

growth of 1% YoY in Titan Eye+ and dip of 4%/9% YoY in World of Titan/ Fastrack

indicates pressure from online players. Precision engineering dipped 10% YoY due to

higher base.

Q2FY16 conference call: Key takeaways

Dusshera in October elicited good demand (20% plus growth in total retail sales). Titan

improved margin in studded jewellery and maintained it in gold jewellery despite

reduction in making charges. Consumer surveys indicate strong brand preference for

Tanishq due to increased affordability and competitiveness post the cut in making

charges. Hedging benefit was negligible in Q2FY16, but will come in Q3 and Q4FY16,

thereby aiding margins.

Outlook and valuations: Brighter H2FY16; maintain ‘BUY’

Long‐term growth potential remains intact with brand equity getting strengthened in

both jewellery and watches. The stock is currently trading at 29.2x FY17E. We

recommend ‘BUY/SP’ on the stock with target price of INR395.

RESULT UPDATE

TITAN COMPANYH1 marred by GHS; stellar H2 envisaged

EDELWEISS 4D RATINGS

Absolute Rating BUY

Rating Relative to Sector Performer

Risk Rating Relative to Sector Low

Sector Relative to Market Overweight

MARKET DATA (R: TITN.BO, B: TTAN IN)

CMP : INR 350

Target Price : INR 395

52‐week range (INR) : 448 / 303

Share in issue (mn) : 887.8

M cap (INR bn/USD mn) : 311 / 4,791

Avg. Daily Vol.BSE/NSE(‘000) : 1,076.3 SHARE HOLDING PATTERN (%)

Current Q1FY16 Q4FY15

Promoters *

53.1 53.1 53.1

MF's, FI's & BK’s 6.1 4.7 4.4

FII's 19.2 20.1 20.3

Others 21.7 22.2 22.2

* Promoters pledged shares (% of share in issue)

: NIL

PRICE PERFORMANCE (%)

Stock Nifty

EW Retail Index

1 month 6.1 5.0 2.7

3 months 1.4 (3.1) 3.9

12 months (12.9) 3.1 18.6

Abneesh Roy +91 22 6620 3141

[email protected]

Pooja Lath +91 22 6620 3075

[email protected]

Tanmay Sharma +91 22 4040 7586

[email protected]

India Equity Research| Retail

October 30, 2015

Financials (INR mn)

Year to Marc Q2FY16 Q2FY15 % change Q1FY16 % change FY15 FY16E FY17E

Net rev. 26,735 35,931 (25.6) 27,086 (1.3) 119,134 123,874 143,740

EBITDA 2,028 3,331 (39.1) 2,227 (9.0) 11,484 11,644 14,518

Adj. Profit 1,454 2,400 (39.4) 1,511 (3.8) 8,163 8,591 10,627

EPS (INR) 1.6 2.7 1.7 9.2 9.7 12.0

P/E (x) 38.0 36.1 29.2

EV/EBITDA 26.9 26.2 21.0

ROAE (%) 29.1 25.5 26.7

Retail

2 Edelweiss Securities Limited

Table 1: Trends at a glance

Table 2: LTL growth trends across formats

Source: Company, Edelweiss research

Titan Q2FY16 result concall | Key takeaways

Demand: Sentiments have not changed and the scenario remains same. Q2FY16 saw good

initial pick up but there was a significant slowdown in all the business in the September

month. This could have been due to delay in the festive season. The festive season in

October has seen good response. Dusshera saw good demand environment (20+% growth

in the total retail sales). The company is also aiming for similar growth in jewellery in

Q3FY16.

Outlook: Growth will be back from Q3FY16 as base will become favourable which will help

in bringing back the operating leverage.

Jewellery: Q2FY15 saw 54% of the contribution coming from the GHS scheme. Since

diamond studded promotion were advanced to June, 2015 the studded share declined YoY

in Q2FY16 (in FY15 it was done in Q2FY16). The company has however maintained its

gross margins in this segment both on studded and plain gold jewellery. The large decline

in the profit is largely because of the decline in the sales. Grammage declined by 10% YoY.

To push the wedding jewellery the company has launched new collections and is also

offering bundling offers which led to some reduction in the wedding jewellery (apart from

the general reduction of the making charges).

Q2FY16 Q1FY16 Q4FY15 Q3FY15 Q2FY15 Q1FY15 Q4FY14 Q3FY14 Q2FY14 Q1FY14 Q4FY13

Watches & clocks sales growth (% YoY) 4.4 9.1 1.8 (1.9) 19.2 11.4 19.5 6.6 (6.9) 10.6 1.5

Watches volume growth (% YoY) ‐ (4.0) (6.0) (4.0) 9.0 9.0 11.0 (10.0) (22.0) 3.0 (10.0)

Jewellery sales growth (% YoY) (32.4) (10.9) (15.3) 11.2 64.8 (10.1) 3.1 (16.1) 3.1 45.7 16.3

Jewellery gramage growth (% YoY) (10.0) (10.0) (11.0) 25.0 75.0 (24.0) (2.0) (21.0) (4.0) (67.0) 7.0

Gold price change (% YoY) (7.0) (6.0) (5.0) (6.0) (4.0) 7.0 (5.5) (9.9) (5.3) (7.0) 8.1

Eyewear sales growth (% YoY) 15.4 19.7 NA NA NA NA NA NA NA NA NA

Others sales growth (% YoY) (10.1) 36.3 NA NA NA NA NA NA NA NA NA

LTL sales growth (%)

World of Titan (4.0) ‐ 5.0 (3.0) 10.0 2.0 8.0 (5.0) (11.0) (1.0) (2.0)

Tanishq (40.0) (12.0) (25.0) (8.0) 68.0 (13.0) 6.0 (15.0) (7.0) 29.0 8.0

Goldplus (28.0) (24.0) (4.0) 30.0 81.0 (24.0) (18.0) (30.0) (21.0) 37.0 ‐

Helios 14.0 4.0 3.0 4.0 9.0 20.0 5.0 10.0 (1.0) 5.0 12.0

Fastrack (9.0) (4.0) (4.0) (6.0) 1.0 9.0 ‐ (9.0) 1.0 8.0 15.0

LFS ‐ Watches 8.0 ‐ 8.0 (5.0) 1.0 5.0 1.0 7.0 (5.0) (2.0) 4.0

Titan Eye+ 1.0 13.0 ‐ 9.0 19.0 13.0 21.0 2.0 25.0 21.0 40.0

PBIT margins %

Watches & clocks 15.3 9.9 9.6 9.7 12.6 10.1 12.0 10.4 9.8 9.6 10.9

Jewellery 6.0 8.7 12.7 9.6 9.2 9.4 10.6 9.5 12.4 7.8 11.9

Eyewear 4.6 1.8 10.8 NA NA 15.1 NA NA NA NA NA

Others (9.7) (22.8) (14.4) NA NA (27.9) NA NA NA NA NA

Like to Like growth (% YoY) Q2FY16 Q1FY16 Q4FY15 Q3FY15 Q2FY15 Q1FY15 Q4FY14 Q3FY14 Q2FY14 Q1FY14 Q4FY13

World of Titan (4.0) ‐ 5.0 (3.0) 10.0 2.0 8.0 (5.0) (11.0) (1.0) (2.0)

Tanishq (40.0) (12.0) (25.0) (8.0) 68.0 (13.0) 6.0 (15.0) (7.0) 29.0 8.0

Goldplus (28.0) (24.0) (4.0) 30.0 81.0 (24.0) (18.0) (30.0) (21.0) 37.0 ‐

Helios 14.0 4.0 3.0 4.0 9.0 20.0 5.0 10.0 (1.0) 5.0 12.0

Fastrack (9.0) (4.0) (4.0) (6.0) 1.0 9.0 ‐ (9.0) 1.0 8.0 15.0

LFS ‐ Watches 8.0 ‐ 8.0 (5.0) 1.0 5.0 1.0 7.0 (5.0) (2.0) 4.0

Titan Eye+ 1.0 13.0 ‐ 9.0 19.0 13.0 21.0 2.0 25.0 21.0 40.0

No. of negative like to like growth 4.0 3.0 3.0 4.0 ‐ 2.0 1.0 4.0 5.0 2.0 1.0

Titan Company


Jewellery margins: The gross margin as a % has not dropped despite the drop in the

making charges and fall in studded share (got balanced by absence of GHS scheme which

is lower margin); margins have improved in the studded jewellery compared to H1FY15

and margins in the gold jewellery has been maintained despite making charges reduction).

This was led by sale of good mix of products. Dip in the margins is due to lower operating

leverage. The margin trajectory will improve from Q3FY15 and onwards. The company

aspires to clock more than 9% margin.

GHS scheme: The bulk of redemption will be done in Q4FY16 but the company is pushing

the customer for redemption for Q3FY15. The sales from this expected to be ~INR4.5bn. The

company is enrolling about INR90‐100mn worth of customer per month (these are

incremental / new customer entering the scheme; the company was doing INR250mn per

month earlier) with average size of more than INR5000. Due to higher ticket price some of

the lower middle class and middle class customer will not be able to join in the current

scheme. The limit of the company is INR7.7bn as of now which is expected to be reached in

January 2016.

Studded share: 24% in Q2FY16. Studded share is down due to advancement of promotions

from Q2 to Q1FY16 (generally the promotions on studded jewellery is done in Q2).

Hedging: The benefit booked on hedging in Q2FY16 was very less, the bulk of it will come in

Q3 and Q4FY16 starting from November. The company booked INR300mn of benefit in

Q1FY16 which also led to better margins in Q1FY16. Q1FY16 was high because of the carry

forward from FY15. When company does gold on spot it earns premium which is accounted

only at the time of sales which happens with a lag. Thus the split of spot purchase will

determine the hedging gains.

Store expansion: Added 7 stores in Q2FY16. The expansion strategy has not changed but the

company is very particular about the size and the location of the stores. The opportunity in

terms of the number of towns remains. However due to slowing down of capital flow the

rate of expansion of franchise has slowed. The lowering of the making charges has made

Tanishq a much more competitive brand. L1 stores has challenges like staff management,

inventory risk, lower connect with the customers, higher fixed costs which are difficult to

manage especially in the small town. The company has taken a balanced view in terms of L1,

L2 and L3 stores. Profitability of L3 stores is reasonable. The company gets 35% of its sales

from L1 stores (90% of the costs are fixed in L1 stores).

Watches: LTL growth was subdued. The company however has seen a surge in the ticket

price and has seen increase in the repeat customers. Helios (for premium watches) however

has seen good LTL growth of 14% YoY. Large format stores has also done well for the

company. The company has done better in the smaller town compared to the Top 8 town.

Exports have done better for the company in Q2FY16. The volume growth was flattish.

Margin improvement was led by lower costs and lower ad expenses due to shifting of the

festive season. The performance in the overseas market was much better than the

domestic market. Lot of the growth in H1FY16 has come from exports (growth trajectory

has been coming down QoQ in watches with September being the least). The company has

launched many new collections and campaigns lined up in this segment. The new brand SF

has met with encouraging response.

Eyewear: LTL growth has seen a sharp slowdown in this business (1% YoY).

Retail


Precision engineering: Declined because in Q2FY15 there was a bulk order in the machine

building segment which was not there in Q2FY16. The demerger of this business is expected

to complete by FY16 end.

Purchase: spot ratio: 50:50 in Q2FY16. Thus 50% of the gold is on gold on lease while rest is

bought on spot.

Shopping habits: Habits are changing from EBOs to MBOs to online.

Cash: The company is marginally cash positive on a net level.

Pan card: The status on the pan card issue remains the same as it was earlier. There is no

change in the status.

Tax rate: FY16 at 23%.

Diamond prices: Are not as familiar to consumers as gold prices are.

Tanishq preference: The company meets more than 1000 people across the country to

understand the brand and with every metric the score of Tanishq has been number 1 which

is helped by better communications and lowering of the making charges. As per the

feedback from the staff of Tanishq, it has become very easy to do business and with

lowering of the making charges making the brand very competitive.

EDEL CHANNEL CHECKS | Titan going all guns blazing to beat slowdown: Showering customers with discounts to ring in festive cheer

Demand continues to remain weak and companies are trying to beat the slowdown by

discounting and promotions.

Competitive intensity remains high not only in consumer staples, but discretionaries

too have inched up discounting significantly.

Even companies like Asian Paints are offering discounts on select range of products in

October (15% off each on Aquadur Wood Finishes range and Royale Enamel and 25%

off on Nilaya).

Titan is not far behind and has inched up promotions, advertising and new launches

significantly signaling not only subdued demand, but also proactiviness on the

company's part.

Jewellery:

The company has hired Deepika Padukone as the brand ambassador and is running a TV

advertisement.

Titan is offering 25% off on making charges on some of its jewellery (bangles and

pendants; implied making charges on these jewellery is in the range of 16‐18% on

which there is 25% off).

It is also offering 20% off on select diamond jewellery.

It has also launched new collections in this segment (Farah Khan Collection, Zuhur

studded collection, Palette rings, New Mia collection, Divyam traditional diamond

collection, specific collection for specific regions and communities like Punjabi, Gujarati,

Maharashtrian, Bengali, Marwadi etc).

Titan Company


Watches:

Titan recently launched SF collection under Sonata brand (a sportwear watch like Casio)

and is advertising it on sports channels.

The product is reasonably priced in the INR1000‐2000 range (Casio watches start from

INR5000) and are digital watches.

On some Titan and Fastrack watches it is offering 40% and 50% off, respectively.

Retail


Eyewear and other accessories:

The company has hired actress Kangna Ranaut to advertise its eyewear collection.

It has also launched a new collection to bring in excitement among consumers.

In accessories, Titan is offering ~50% off on select bags, wallets and belts.

Encouraging online platform

To encourage purchase from the online platform, Titan is giving INR1250 off on the first

logged in purchase after registration.

Giving 10% cash back for purchases through Mobikwik and 5% cashback on purchases

through ICICI and HDFC bank cards.

The company is also encouraging purchase of jewellery through the online channel and

giving free shipping and guarantee of purity.

Titan Company


Other developments

TBZ tie up with Snapdeal: TBZ has tied up with the ecommerce website Snapdeal and thus

has marked entry in to the ecommerce space. The company will be selling its collection of

diamond jewellery and coins on the site. As per Snapdeal SVP (Partnerships & Strategic

Initiatives) Tony Navin, “Jewellery is one of the fastest growing categories on Snapdeal. With

the launch of TBZ's exclusive collection on Snapdeal, we are excited to bring our customers a

vast array of choices from a certified and reputed jewellery design brand and expand our

designer jewellery and accessory portfolio”.

TBZ enters into franchise agreement: TBZ has signed its first Franchise Agreement for a TBZ‐

The Original store in Dhanbad, Jharkhand. This franchisee based model will help the

company’s retail expansion plans and vision to increase its retail space from current 93.000

sq ft to around 1.50,000 sq ft in the next two to three years. Since the inventory is on the

book of franchise this model will help in improvement of ROE and ROCE.

Titan analyst meet FY15 | Key takeaways

Overall Indian consumption story: The overall long‐term environment remains exciting

considering the Indian consumption story. The 3 aspects of demographic dividend, rising

incomes of Indian consumers and growing aspirations excite the company.

Category participation: The company participates in categories that are unorganised,

under‐served and under‐penetrated. Titan always tries to make pro consumer choices (eg.

In the watch business, the company moved from mechanical watches to quartz watches).

Being in the unorganized sector has its pros (large opportunity in branded space, improved

quality of competition and category transformation) and cons (non level playing field for

organized players and regulations). Titan will enter categories that cater to personal

lifestyles, involve branding and design and which have national play.

Watch market: Titan achieved leadership in the watches segment in 5 years of entry. Of the

total 52mn watches sold in India, only 16mn watches can be accounted for; balance are in

the grey market.

New categories: Titan will continue to explore unorganized segments in the market.

Failures of Titan in the past: Titan has learned from its failure. It failed in the jewellery

business for the first 6‐7 years, the Europe, the jewellery foray in USA and the first version

of Raga watches.

Innovations: Titan is promoting a culture of innovation across products, business models,

brands, customer touch points and customer experience. The company promotes

innovation in the organization through initiatives like Titan Innovation Bazaar, Innovation

School of Management etc. Eg of innovations are Edge watches, diamond sorting machines

(first time in the world). In its business model also Titan has chosen the end‐to‐end business

model (vertically integrated), but is open to change. Eg getting jewellery manufactures

outside but it keeps a close watch on the process.

Service network: Titan has the largest network of after sale service for watches in India. This

is proving to be an advantage as foreign brands entering India are using the network built

by Titan.

Retail


Watch ranking: Titan is the 5th largest watch maker in the world. Ranking from 1 to 6 is as

follows: Swatch, Casio, Citizen, Timex, Titan, Seiko.

Factors affecting top line growth: Top line growth of the company is impacted by consumer

sentiments, share of wallet, digital enablement and technology.

Steps taken to revive consumer sentiments: Though recent data indicates that consumer

sentiments are at all time high, it has not reflected on ground. But it may come with a lag.

To revive demand, Titan is taking steps like increasing A&P expenditure significantly, store

renovations (renovates store witnesses good growth) and expansion, expanding in the

middle India (200+ towns), sharpening focus on richer product mix (consumers are ready

to pay the price for a good product), improving the in‐store experience and leveraging the

customer loyalty programme to enhance ticket size.

Share of wallet not share of voice: Titan has shifted focus to capturing share of wallet of

consumers. Today consumers are involved in a phenomenon called snacking (which means

consumers buying small ticket items but buying them many times through online).

Considering this, Titan will keep launching new and exciting products, expanding the

product portfolio, exploring new product categories and growing newly launched

businesses like accessories and fragrances.

Digital: Titan has set up a separate digital function in the company. It is planning to build a

business model which has digital inbuilt in all its businesses. For this Titan has aggressive

plans in the e‐commerce space, big data analytics will be helped by the 8mn+ consumer

database available through Unified Loyalty Program and advertising through the social and

digital mediums.

Technology: Tata group has appointed a technology officer who will work with the entire

group. Titan is exploring technology play in the wearable and watches segment and infusing

smart technology in personal wear products. It has about 1,200 owned outlets which gives

it a big opportunity for partnering with technology companies like Apple and Samsung.

Capex: Capex is expected to be in the range of INR1.5‐2.0bn for FY16. Titan has done

significant capex in manufacturing (started the watch factory in Coimbatore in FY15).

Similarly capex will be done in building manufacturing capabilities in FY16 (eyewear ) and on

building new corporate office. Corporate office is expected to be finished by the end of CY16.

Inorganic growth: Titan is actively exploring opportunities in the lifestyle space. The

company is not actively seeking inorganic growth, but is open to opportunities which are

complementary. It will not acquire for scale but will acquire for skill (for acquiring

capability).

Retail expansion: Titan will be opting for more of the asset light model by adding more

franchisees.

Dividend payout: Payout expected to be in the 25‐30% range.

Ecommerce: Walkins at internet space were significantly higher than those in the physical

stores in Q1FY16. Because of the very high number of store network, Titan will benefit as

it can go Omni Channel.

Titan Company


Factors looked at before expansion in Middle India: The company looks at the size of the

jewellery market before entering any city – if the market is INR2‐3bn, Titan looks to garner

revenues of INR250mn in the first year of operation, looks in to the prevailing making

charges of other players, overall retailing development in the city (eg if there is a Levi’s

tore, Croma store etc) and also gauge pattern on the basis of the average ticket price of

the watches sold.

JEWELLERY

Aim: Tanishq aims to become an icon in 2020 from a leader in 2015.

Industry size: The domestic jewellery market size is INR2,500bn. Out of this gold is

INR2,100bn (Titan has 3% share) while diamond is INR400bn (Titan has 7% share).

Occasion‐wise size: Wedding forms INR1,500bn of the overall size (Titan has about 1%

share in this), occasion wear forms INR300bn of the total size (Titan has 3% share) while

daily wear is INR700bn (Titan’s share 8%). Titan’s overall share in the market is 4%.

Customer profile and segmentation: Customer profile in the jewellery space can be divided

into 3 types: Adornment (the upper middle class, service class and professionals with

average bill size of INR75000), Savings (middle and lower middle class, service class with

average bill size of INR100000) and Status (Upper middle and upper class with average boll

size of INR150000).

Titan position: Titan already has a big presence in the adornment segment but now it will

focus on the status segment where its presence is low. It will not be a big player in the

savings segment and will only participate in the same. Eg states like Chennai, parts of

Maharashtra, Orissa, Kerala and West Bengal are characterized by the savings segment,

while Delhi, NCR, Gujarat and Mumbai, part of Hindi belt are characterized by the status

segment (diamond share is high in this region).

Competition: Different regions have different types of customers. Hence, if a regional player

becomes a pan India level player, that does not mean he is fighting Titan. The competition is

catering to different segment.

Diamond share: As per a study, diamond jewellery has been increasing its share in

weddings: 1% of customers buy 40% of value.

Status segment: Status segment was impacted by the PAN card issue as it involves larger

ticket size. However the young generation is pushing to turn white. Also the phenomenon

like jewellery on sangeet, proposal rings etc is increasing which caters well to this segment.

Titan has been lagging in the status segment and had a smaller number of designs

compared to other players in this segments like PCJ, TBZ, regional players etc. Now Titan

will invest in building new designs. This may bring down inventory turns, but since

margins in the space are higher it will make up for it. Thus Titan will offer more choice in

this segment to consumers.

Making charges: Absence of the golden harvest scheme also helped the company bring

down making charges without impacting gross margins. This has led to improvement in the

competitive advantage but still Tanishq remains at a premium.

Retail


Drivers: Sales growth for the company will be driven by the wedding seasons, high value

diamond jewellery, working women jewellery and store expansion. Titan will be investing

behind designs in wedding and high jewellery segments.

Fall in gold prices: During falling gold prices increase in demand (in terms of increase in the

volume growth) is lower than decrease in gold price.

International: Titan will be entering the GCC market within the next 5 years but it will be

NRI focused and not focus on the ethnic population.

Price cut in diamond jewellery: Titan will not be cutting prices in the diamond jewellery

segment and will continue to operate at a premium. The quality, testing and precision that

Titan offers is not offered by any other player and so it charges a premium.

VAT rate: Current VAT rate is 1%.

PAN card issue: The PAN card issue seems to be on the backburner as the government is

already grappling with many other issue. It does not anticipate the issue for atleast

another year now.

Ecommerce: Jewellery remains an important part of the ecommerce drive of the company.

Goldplus: Goldplus caters to the savings segment. Hence the rollout will depend on the

geography and the market. This segment has become highly competitive in South.

Franchise expansion: Expansion through franchise is taking a bit more time. More that

2/3rd sales of the company come from L1 and L2 stores while little less than 1/3rd sales are

from L3 stores. Adding L3 store becomes difficult as the gold price galls since all of them

are not hedged, PAN card issue and also cash flows are tough since it requires ~INR100‐

120mn to invest in a L3 store.

Average break even: it takes 3 year for a large company owned store to break even on retail

margin basis.

Market share: Titan believes that it has gained market share.

New experiments: Titan is experimenting with the hub and spoke model in which despite

a smaller size of the store it is able to show a large inventory of jewellery to consumers

with the help of technology.

Online: Titan is now looking at online as business opportunity and is not waiting for Tata to

start its group online site. However it believes that jewellery is not a multi brand category

and hence it will not be an anchor on any online site. It will have its own online platform.

WATCHES and ACCESSORIES BUSINESS

EBIT: FY15 the EBIT of the segment increased to INR2110mn but his was led by lower

advertising.

Titan Company


Technology: The entry of the technology watches has bring excitement in the watch

category as a whole. This gives Titan an opportunity to foray into this space. Companies like

Tag Heur, Gucci have entered the technology space. Soon Titan will also be foraying into the

technology space. Titan believes that it will focus on the design in which technology will be

embedded and will not go for something like a mobile phone on hand. Titan is exploring

different options in this space – either entering with its own brand or entering through a

licensed or other retail brand.

Share of wallet going to other products: Watches are facing competition not only from the

competing brands but also from the other categories as well as the phenomenon called

snacking is increasing. Consumers are spending into categories like apparel, shoes and

gadgets; going for weekend entertainments (spend amount for which a watch can be

bought) and have access to new styles and options in different categories helped by internet.

Network: Titan has a service centre network of 685 outlets (in 267 towns), 11000 dealers in

India and 2200+ outlets (in 30 other countries).

Watch segment: Titan has a watch for every segment. It has also created sub brands like

Xylys, Zoop, Edge, Fastrack etc. Soon the company will be launching a sub‐brand to enter

the sports watch segment.

New stores: Titan will be launching 70 new stores (40 World of Titan and 30 Large Format

stores) for expansion in middle India. Ecommerce will also be expanded.

EYEWEAR

Online entry: Entry into the eyewear segment into the online space was unexpected as this

model requires retail space. These online players are going into physical format now eg

Lenskart.

Competition: Competition in this space is driven by the regional players and international

players are looking at acquisition. Players like Ray Ban, Oakley etc are also entering the lens

space.

Objective: Target to double the business in 3 years. Also aims to double volume of

sunglasses in 3 years (Titan Glares). The company will also be looking in the international

market like Srilanka, Dubai (will set up stores in these markets).

Manufacturing: Will be investing in manufacturing of frames, will create regional lens labs

in Mumbai, Delhi and Kolkata, will renovate stores, open 10 new company owned stores

and will also roll out new retail identity. Large part of retail expansion will be franchise led.

Technology: Will use technology to drive growth with initiatives like eye‐testing on mobile,

RX lenses with mirror finish, bifocal lens without the line/visible zone, anti fog etc.

Retail


Outlook and valuations: Likely to improve in H2FY16; maintain ‘BUY’

We expect discretionary demand to recover from H2FY16 following lag with pick up in

staples demand. Titan stands to benefit from retail expansion (doubled retail space in

jewellery during FY11‐15 with addition of ~0.5mn sq ft), which remains on track despite

slowdown. The new stainless steel case plant at Coimbatore will allow better control over

watches margins.

We expect demand recovery also due to new version of GHS kicking in, pushing of lower‐

priced products in jewellery making Tanishq accessible to a larger consumer base, steady

shift in preference to organised jewellers from unorganised players and high studded share.

Also, the benefit of hedging will flow in H2FY16, which will aid margin. H2FY16 will see

significant growth led by lower base (jewellery sales dipped 2.2% YoY), GHS redemption and

encouraging festive season. We assign target multiple of 33x FY17E EPS to arrive at a target

price of INR395. We recommend ‘BUY/Sector Performer’ on the stock.

Chart 1: Jewellery margin dipped 314bps YoY Chart 2: Jewellery revenue declines 32.4% YoY

Chart 3: Watches margin increased 193bps YoY Chart 4: Watches revenue up 4.4% YoY


0.0

3.0

6.0

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(%)

Titan Company


Chart 5: Watches volumes flattish


Table 3: Segmental performance

Table 4: Growth across formats


(27.0)

(17.2)

(7.4)

2.4

12.2

22.0

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

(%)

% growth % growth

Titan (Year to March) Q2FY16 Q2FY15 Y‐o‐Y Q1FY16 Q‐o‐Q

Revenue

Watches & clocks 5,465 5,235 4.4 4,845 12.8

Jewellery 19,817 29,294 (32.4) 20,720 (4.4)

Eyewear 885 767 15.3 1,068 (17.1)

Others 586 652 (10.1) 469 25.1

Corporate unallocated 96 161 (40.6) 139 (31.3)

Total 26,849 36,109 (25.6) 27,241 (1.4)

PBIT

Watches & clocks 838 702 19.4 481 74.0

Jewellery 1,191 2,682 (55.6) 1,803 (33.9)

Eyewear 41 3 1,536.0 20 109.7

Others (57) (30) NM (107) NM

Total 2,013 3,356 (40.0) 2,197 (8.4)

PBIT margins

Watches & clocks 15.3 13.4 193 9.9 540

Jewellery 6.0 9.2 (314) 8.7 (269)

Eyewear 4.6 0.3 430 1.8 280

Others (9.7) (4.6) (512) (22.8) 1,311

Total 7.5 9.3 (180) 8.1 (57)

Sales value growth (% YoY) Like to Like growth (% YoY)

World of Titan (2.0) (4.0)

Tanishq (37.0) (40.0)

Goldplus (28.0) (28.0)

Helios 15.0 14.0

Fastrack (1.0) (9.0)

LFS ‐ Watches 5.0 8.0

Titan Eye+ 15.0 1.0

Retail


Chart 6: 1 year forward PE band

Source: Edelweiss research

20

110

200

290

380

470

Oct‐09

Apr‐10

Oct‐10

Apr‐11

Oct‐11

Apr‐12

Oct‐12

Apr‐13

Oct‐13

Apr‐14

Oct‐14

Apr‐15

Oct‐15

(INR)

15x

20x

25x

30x

35x

40x

Titan Company


Financial snapshot (INR mn) Year to March Q2FY16 Q2FY15 % change Q1FY16 % change YTD16 FY16E FY17E

Net revenues 26,735 35,931 (25.6) 27,086 (1.3) 53,821 123,874 143,740 Raw material costs 19,774 27,113 (27.1) 19,277 2.6 39,051 90,676 104,930

Ad spend 895 1,058 (15.4) 1,288 (30.5) 2,184 4,955 5,606

Employee expenses 1,800 1,639 9.8 1,756 2.5 3,556 6,813 7,474

Other expenses 2,238 2,790 (19.8) 2,537 (11.8) 4,775 9,786 11,212

EBITDA 2,028 3,331 (39.1) 2,227 (9.0) 4,255 11,644 14,518

Depreciation 240 199 20.5 228 5.0 468 915 912

EBIT 1,788 3,132 (42.9) 1,999 (10.6) 3,787 10,729 13,606

Other income 114 178 (36.0) 155 (26.6) 269 879 1,035

Interest 87 109 (19.9) 118 (26.4) 205 457 480

Profit before tax 1,815 3,201 (43.3) 2,036 (10.9) 3,851 11,151 14,161

Provision for taxes 361 801 (54.9) 526 (31.3) 887 2,565 3,540

Minority interest

Associate profit share (5) (6)

Reported net profit 1,454 2,400 (39.4) 1,511 (3.8) 2,965 8,591 10,627

Adjusted Profit 1,454 2,400 (39.4) 1,511 (3.8) 2,965 8,591 10,627

Diluted shares (mn) 888 888 888 888 888 888

Adjusted Diluted EPS 1.6 2.7 1.7 3.3 9.7 12.0

As % of net revenues

Raw material 74.0 75.5 71.2 72.6 73.2 73.0

Ad spend 3.3 2.9 4.8 4.1 4.0 3.9

Employee cost 6.7 4.6 6.5 6.6 5.5 5.2

Other expenses 8.4 7.8 9.4 8.9 7.9 7.8

Total expenses 92.4 90.7 91.8 92.1 90.6 89.9

EBITDA 7.6 9.3 8.2 7.9 9.4 10.1

PBT 6.8 8.9 7.5 7.2 9.0 9.9

Tax rate 19.9 25.0 25.8 23.0 23.0 25.0

Retail


Company Description

Titan was incorporated in 1984 as a joint venture between the TATA Group and Tamil Nadu

Industrial Development Corporation (TIDCO), a Government of Tamil Nadu undertaking. The

company manufactures and markets quartz watches since 1987 and is now India’s leading

watch manufacturer and retailer. Gradually, jewellery, precision engineering, eyewear,

accessories, and licensed products were added to the watches portfolio. The Titan brand

was extended to Tanishq and other retail businesses. Jewellery business now contributes

~80% to sales with Tanishq being the largest (has jewellery retail space of ~0.7mn sq ft) and

most reputed jeweller in the organized space.

Investment Theme

The Indian retail landscape is evolving with interplay of several demographic and economic

factors. The long‐term prospects backed by changing consumer behaviour in favour of larger

discretionary spending, has set the stage for a healthy growth in the retail space over the

next five years. The big opportunity lies in the growing share of organised retail with

growing trend among consumers to allocate a larger share of income to consumption and

gradual improvement in lifestyle.

Titan has assiduously positioned itself in the premium designer jewellery space. We believe

Titan has the ability to create significant value with its large distribution presence, strong

brand, designing skills and proven execution track record. Titan has proved its metal time

and again by emerging strong and successful against various regulatory hurdles that have

emerged over the past one year. With robust balance sheet, strong brand equity and

professional management team in place we remain bullish on Titan.

Key Risks

Reduction in customs duty: Customs duty which is currently at 10% has lead to rampant

smuggling and it is likely that it will be reduced in the near term. Any reduction in custom

duty will lead to write back in inventory.

Deterioration of macro conditions: Poor macro outlook could lead to prolonged slowdown

in the company’s growth as the company’s revenues depend on discretionary spend.

Volatility in gold prices: Gold prices have a significant bearing on gold demand. Any steep

rise in prices results in lower demand, and investment buying that comes in is low margin.

Margin pressure due to deterioration in product mix and investment buying: Down trading

in watches and jewellery divisions on account of fall in discretionary spending and higher

growth in tier II and IV towns could impact margins.

Business seasonal, restricted to marriage season and festivals: The jewellery segment is

seasonal with respect to marriage season and festivals. Additionally, the number of

wedding dates varies in a year. This could impact the company’s revenue.

Regulatory hurdles: As gold is one of the key import articles, Government actions to curb its

demand thereby impacts the jewellery business by reducing demand and/or increasing

costs like customs duty, lease rate, etc if not eased / tightened further pose a risk to the

jewellery business.


Titan Company

Financial Statements

Income statement (INR mn)

Year to March FY14 FY15 FY16E FY17E

Net revenue 109,274 119,134 123,874 143,740

Materials costs 80,519 87,515 90,676 104,930

Gross profit 28,755 31,619 33,198 38,810

Employee costs 5,404 6,325 6,813 7,474

Other Expenses 8,863 9,989 9,786 11,212

Ad. & sales costs 4,044 3,821 4,955 5,606

EBITDA 10,443 11,484 11,644 14,518

Depreciation 675 896 915 912

EBIT 9,768 10,588 10,729 13,606

Add: Other income 1,202 708 879 1,035

Less: Interest Expense 871 807 457 480

Profit Before Tax 10,099 10,489 11,151 14,161

Less: Provision for Tax 2,751 2,326 2,565 3,540

Associate profit share (2) ‐ (5) (6)

Reported Profit 7,349 8,163 8,591 10,627

Adjusted Profit 7,349 8,163 8,591 10,627

Shares o /s (mn) 888 888 888 888

Adjusted Basic EPS 8.3 9.2 9.7 12.0

Diluted shares o/s (mn) 888 888 888 888

Adjusted Diluted EPS 8.3 9.2 9.7 12.0

Adjusted Cash EPS 9.0 10.2 10.7 13.0

Dividend per share (DPS) 2.1 2.3 2.9 3.6

Dividend Payout Ratio(%) 29.7 30.1 35.1 35.1

Common size metrics


Materials costs 73.7 73.5 73.2 73.0

Staff costs 4.9 5.3 5.5 5.2

Ad. & sales costs 3.7 3.2 4.0 3.9

Other expenses 8.1 8.4 7.9 7.8

Depreciation 0.6 0.8 0.7 0.6

Interest Expense 0.8 0.7 0.4 0.3

EBITDA margins 9.6 9.6 9.4 10.1

EBIT margins 8.9 8.9 8.7 9.5

Net Profit margins 6.7 6.9 6.9 7.4

Growth ratios (%)


Revenues 7.9 9.0 4.0 16.0

EBITDA 3.1 10.0 1.4 24.7

PBT 0.3 3.9 6.3 27.0

Adjusted Profit 1.3 11.1 5.2 23.7

EPS 1.3 11.1 5.2 23.7

Key Assumptions


Company

GDP(Y‐o‐Y %) 6.9 7.4 8.0 8.7

Inflation (Avg) 9.5 5.9 5.0 5.0

Repo rate (exit rate) 8.0 7.5 6.8 6.5

USD/INR (Avg) 60.5 61.1 64.5 65.0

Watch ‐ growth (%) 6.8 6.7 8.0 12.0

Jewellery ‐ growth (%) 6.5 9.2 2.0 16.0

Eyewear ‐ growth (%) 28.0 24.0 20.0 25.0

Other ‐ growth (%) 105.4 (2.0) 30.0 35.0

EBITDA margin (%)

COGS as % of sales 73.7 73.5 73.2 73.0

Gold as % of COGS 80.5 80.5 80.5 80.5

Components as % of COGS 9.6 9.6 9.6 9.6

Purchases (% of COGS) 17.2 17.2 17.2 17.2

Staff costs (% of rev) 4.9 5.3 5.5 5.2

A&P as % of sales 3.7 3.2 4.0 3.9

Financial assumptions

Tax rate (%) 27.2 22.2 23.0 25.0

EBITDA margin 9.6 9.6 9.4 10.1

Capex (INR mn) (8,681) 15,856 7,766 4,864

Debtor days 15 18 15 15

Inventory days 171 165 170 170

Payable days 67 58 80 80

Cash conversion cycle 119 124 105 105

Dep. (% gross block) 6.5 7.4 6.5 5.5

Interest rate on cash 13.4 32.6 17.0 16.0

Dividend payout 29.7 30.1 35.1 35.1


Retail

Peer comparison valuation

Market cap Diluted P/E (X) EV / EBITDA (X) ROAE (%)

Name (USD mn) FY16E FY17E FY16E FY17E FY16E FY17E

Titan Company 4,791 36.2 29.2 26.2 21.0 25.5 26.7

Future Retail 785 67.5 32.0 7.2 6.5 1.3 2.7

Jubilant Foodworks 1,492 59.1 38.6 27.6 19.3 22.1 27.4

Shoppers Stop 505 215.9 148.4 16.5 13.0 (0.2) 2.7

Wonderla Holidays 284 29.1 26.4 17.3 13.1 16.6 16.1

Median ‐ 59.1 32.0 17.3 13.1 16.6 16.1

AVERAGE ‐ 81.5 54.9 19.0 14.6 13.1 15.1

Source: Edelweiss research

Cash flow metrics


Operating cash flow (5,547) 5,026 9,875 7,365

Investing cash flow (2,699) (898) (2,109) (2,501)

Financing cash flow 4,956 (10,335) (3,468) (4,204)

Net cash Flow (3,290) (6,207) 4,298 661

Capex 8,681 (15,856) (7,766) (4,864)

Dividend paid (2,181) (2,458) (3,015) (3,730)

Profitability and efficiency ratios


ROAE (%) 32.7 29.1 25.5 26.7

ROACE (%) 41.4 34.7 33.5 35.8

Inventory Days 171 165 170 170

Debtors Days 15 18 15 15

Payable Days 67 58 80 80

Cash Conversion Cycle 119 124 105 105

Current Ratio 2.0 2.0 2.1 2.2

Gross Debt/EBITDA 0.8 0.1 0.1 0.1

Net Debt/Equity ‐ ‐ (0.1) (0.1)

Interest Coverage Ratio 11.2 13.1 23.5 28.4

Operating ratios


Total Asset Turnover 4.0 3.6 3.5 3.5

Fixed Asset Turnover 20.3 18.1 15.9 15.3

Equity Turnover 4.9 4.2 3.7 3.6

Valuation parameters


Adj. Diluted EPS (INR) 8.3 9.2 9.7 12.0

Y‐o‐Y growth (%) 1.3 11.1 5.2 23.7

Adjusted Cash EPS (INR) 9.0 10.2 10.7 13.0

Diluted P/E (x) 42.3 38.1 36.2 29.2

P/B (x) 12.3 10.1 8.5 7.2

EV / Sales (x) 2.8 2.6 2.5 2.1

EV / EBITDA (x) 29.7 27.0 26.2 21.0

Dividend Yield (%) 0.6 0.7 0.8 1.0

Balance sheet (INR mn)

As on 31st March FY14 FY15 FY16E FY17E

Share capital 888 888 888 888

Reserves & Surplus 24,340 29,951 35,527 42,423

Shareholders' funds 25,227 30,839 36,414 43,311

Total Borrowings 8,068 998 998 998

Long Term Liabilities 741 905 905 905

Def. Tax Liability (net) (88) (193) (193) (193)

Sources of funds 33,948 32,548 38,123 45,020

Gross Block 11,319 12,824 15,324 17,824

Net Block 6,005 6,889 8,474 10,062

Capital work in progress 329 552 161 162

Intangible Assets 137 102 102 102

Total Fixed Assets 6,471 7,543 8,737 10,327

Non current investments 31 31 31 31

Cash and Equivalents 8,927 2,138 6,436 7,096

Inventories 38,694 40,493 42,233 48,871

Sundry Debtors 1,541 1,897 1,968 2,284

Loans & Advances 5,190 6,340 5,091 5,907

Other Current Assets 167 44 44 44

Current Assets (ex cash) 45,592 48,774 49,336 57,106

Trade payable 8,594 19,396 19,874 22,998

Other Current Liab 18,478 6,542 6,542 6,542

Total Current Liab 27,072 25,938 26,416 29,540

Net Curr Assets‐ex cash 18,520 22,836 22,919 27,566

Uses of funds 33,948 32,548 38,123 45,020

BVPS (INR) 28.4 34.7 41.0 48.8

Free cash flow (INR mn)


Reported Profit 7,349 8,163 8,591 10,627

Add: Depreciation 675 896 915 912

Interest (Net of Tax) 634 628 352 360

Others 235 179 100 114

Less: Changes in WC 15,619 (7,496) 84 4,647

Operating cash flow (6,725) 17,361 9,875 7,365

Less: Capex 1,956 1,505 2,109 2,501

Free Cash Flow (8,681) 15,856 7,766 4,864


Titan Company

Top 10 holdingsPerc. Holding Perc. Holding

Jhunjhunwala Rakesh 6.7 Matthews International Capital 4.5

Dendana Investments Mauritius Lt 2.2 Jhunjhunwala Rekha Rakesh 1.9

First State Investments Icvc 1.7 Copthall Mauritius Inv Ltd 1.5

Franklin Templeton Investments 0.9 Uti Asset Management Co Ltd 0.8

Fidelity Management & Research 0.8 Prudential Icici Asset Mgmt Co 0.8

*as per last available data

Insider Trades Reporting Data Acquired / Seller B/S Qty Traded

12 Aug 2015 Tata Sons Limited Buy 19387920.00

*in last one year

Bulk Deals Data Acquired / Seller B/S Qty Traded Price

11 Aug 2015 Tata Steel Ltd Sell 19387920 329.35

11 Aug 2015 Tata Sons Ltd Buy 19387920 329.35

*in last one year

Additional Data

Directors Data Hans Raj Verma Chairman Mr. T.K. Arun Non‐Executive, Non‐Independent Director

Mr.Ishaat Hussain Director Mr.N.N.Tata Non‐Executive, Non‐Independent Director

Mr. Bhaskar Bhat Managing Director Mr. T.K.Balaji Non‐Executive, Independent Director

Dr. C.G.Krishnadas Nair Non‐Executive, Independent Director Ms. Vinita Bali Non‐Executive, Independent Director

Ms. Hema Ravichandar Non‐Executive, Independent Director Mrs. Ireena Vittal Non‐Executive, Independent Director

Prof. Das Narayandas Non‐Executive, Independent Director Mr. N.S. Palaniappan Non‐Executive, Non‐Independent

Auditors ‐ Deloitte Haskins & Sells

*as per last annual report


Company Absolute

reco Relative

reco Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Future Retail HOLD SU H Jubilant Foodworks BUY SP M

Shoppers Stop BUY SP L Titan Company BUY SP L

Wonderla Holidays BUY SP M

RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return


Titan Company

252

308

364

419

475

531

Oct‐14

Nov‐14

Dec‐14

Jan‐15

Feb‐15

Mar‐15

Apr‐15

May‐15

Jun‐15

Jul‐15

Aug‐15

Sep‐15

(INR)

Titan Company

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.

Board: (91‐22) 4009 4400, Email: [email protected]

Nirav Sheth

Head Research

[email protected]

Coverage group(s) of stocks by primary analyst(s): Retail

Future Retail, Jubilant Foodworks, Shoppers Stop, Titan Company, Wonderla Holidays

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 155 45 8 208* stocks under review

Market Cap (INR) 151 54 3

Date Company Title Price (INR) Recos

Recent Research

27‐Oct‐15 Wonderla Holidays

Footfalls recover; guidance maintained; Result Update

316 Buy

07‐Oct‐15 Retail Yum! brands skids further; JFL steady; Sector Update

23‐Sep‐15 Wonderla Holidays

MD meet takeaways –Confident on expansion and recovery; Visit Note

278 Buy

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total

Rating Interpretation

Buy appreciate more than 15% over a 12‐month period

Hold appreciate up to 15% over a 12‐month period

Reduce depreciate more than 5% over a 12‐month period

Rating Expected to

One year price chart


Retail

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Titan Company

ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may have managed or co‐managed public offering of securities for the subject company in the past 12 months. ESL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or ESL’s associates may have financial interest in the subject company. ESL and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance.

Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk.

Research analyst has served as an officer, director or employee of subject Company: No

ESL has financial interest in the subject companies: No

ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report.

Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No

ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No

Subject company may have been client during twelve months preceding the date of distribution of the research report.

There were no instances of non‐compliance by ESL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to their charges of non registration as a broker dealer.

A graph of daily closing prices of the securities is also available at www.nseindia.com

Analyst Certification:

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Additional Disclaimers

Disclaimer for U.S. Persons

This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.


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In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker‐dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc. Disclaimer for U.K. Persons

The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA"). In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person. Disclaimer for Canadian Persons

This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst. This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31‐103 ("NI 31‐103")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person. ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31‐103 available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada. Disclaimer for Singapore Persons

In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No. 201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"), sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for private investors.

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Documents

Titan Company - result update-Oct-15-EDEL - Myirisbreport.myiris.com/ES1/TITINDUS_20151030.pdf · Titan Company’s (Titan) Q2FY16 revenue (down 25.6% YoY on very high base ... initial