Titan Industries: The glitter is intact

Titan’s jewellery business (which contributes 80% to Ebit—earnings before interest and taxes) is a structural growth story driven by the shift in market share from unorganised players to branded retailers.

The company is in an aggressive expansion phase now which will see a doubling of retail space over FY11-13 in the jewellery business. We believe the volume weakness in the jewellery business has bottomed out and expect volume-led earnings growth to gradually come back to the company as new retail stores start ramping up and jewellery demand in general picks up on a weak base. We expect Titan to post earnings CAGR (compound annual growth rate) of 22% over FY12-15. We initiate coverage with an Outperform rating and a one-year target price of R341.

Compelling structural growth story: Titan’s growth will be driven by the jewellery division. Branded jewellery will remain a high growth market as over 90% of the Indian jewellery market is with the unorganised sector, which is likely to gradually lose share to large organised retailers like Titan. Increasing awareness of quality of jewellery and rising aspiration of buying from branded chains are the key drivers for this growth. Titan has a strong brand image. It is also uniquely positioned for modern and contemporary designs, as compared to wedding and traditional jewellery for its smaller organised peers.

Near-term demand has bottomed out: Demand for jewellery has been very weak in the past four-five quarters with India’s jewellery volumes dropping 20-40% year-on-year. However, we are seeing

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