TITAN Company Shares Fundamental Analysis and Future Outlook
The Titan Company Limited (Titan) was started in 1984 as a small joint venture between the TATA Group and Tamil Nadu Industrial Development Corporation (TIDCO). Today Titan has grown to be the fifth-largest integrated watch manufacturer in the world. The company has expanded into underpenetrated markets and created lifestyle brands across different product categories including Perfumes, Accessories and Jewellery.
- On a corporate level, the company operates in 4 major market segments with its 16+ major brands. The mass-market segment includes the brand Sonata and is targeted towards value for money range of products. The Mid-market segment includes brands like Titan, Zoop, Fastrack, Mia, Titan eye plus and Skinn. These brands along with some low priced products of Tanishq and Taniera are the main revenue drivers for the company.
- The premium segment includes brands like Xylys, Tanishq, Nebula and Taneira and the Luxury segment have Favre-Leuba and Zoya brands. These drive profitability for the company.
- The watches business earns around 12% of the company’s overall revenue, with gifting contributing more than 50% of it.
- The jewellery business contributes around 84% of the total revenue and the rest is contributed by eyewear, perfumes and accessories business. Overall the company’s business model depends heavily on the jewellery segment which exposes it to fluctuating commodity prices and sharp changes in demand. The company is expanding in other business segments like eyewear and handloom but most of the brands are still in the nascent stage.
- Titan Engineering and Automation Ltd (TEAL) is a 100% owned subsidiary and specializes in manufacturing aerospace components and providing assembly automation solutions.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: TITAN Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The demand for jewellery and watches will see a drastic drop due to the Covid-19 outbreak and the subsequent lockdown. The major contributors to the decline in demand would be deferred matrimony season and a reduction in corporate gifting. The revenue loss is also expected to be greater than 40–45% in the coming few quarters. Any significant recovery will only be seen after FY 2021.
- Titan may be able to gain market share in the coming quarters as unorganized players are facing a liquidity crunch and lack of access to capital during these uncertain times. Online purchase of Jewellery may also become a norm and Titan stands to benefit due to its online presence through Caratlane.
- Recently, Titan has sold watches through the online medium in the US market and is evaluating the idea of online jewellery sales there. This could mean a significant increase in the addressable market for omnichannel jewellery sales for Titan.
- Overall, sales of watches were weak in the last year and are expected to decline further. Margins are also likely to take a hit and the company can look for down-trading to improve sales in the coming years.
- For Taniera brand, the company is looking forward to the franchisee model as well. It will also continue to expand the stores gradually in FY 2021 by taking it to new cities and understanding what works best. Beyond FY 2021, the plans were of aggressive expansion, but the company may now defer their Cap-Ex to conserve cash.
Overall the company has solid fundamentals and a capable management team. The only concern is their over-dependence on jewellery business which can see a sharp decline in the coming years. Still, the company remains an attractive investment for the long term with a suitable entry point.
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