ICICI Securities Limited

Initiating Coverage
March 24, 2011
Rating Matrix
Rating : Add
Titan Industries Limited (TITIND)
Target : | 3624
| 3487
Target Period : 12-15 months
Potential Upside : 4% Riding the tide of discretionary spending…
Favourable demographics like increased urbanisation, rising number of
YoY Growth (%) middle class households & working population and increased
FY10 FY11E FY12E FY13E disposable income are expected to fuel discretionary spending. India is
Total Revenue 22.9 34.3 22.0 27.3 expected to see a shift towards discretionary spending, the share of
EBITDA 33.0 53.2 17.6 31.2 which is expected to reach ~ 70% in 2025E from 52% in 2005. Titan
Net Profit 57.5 72.3 11.3 31.5 Industries (TIL) is aptly positioned with product offerings to cater to
discretionary spending in the lifestyle segments. With a strong
Current & Target Multiple (x) distribution network (149 new stores expected in FY11E) and robust
FY10 FY11E FY12E FY13E brand presence in India, we believe TIL is suitably placed to fulfil the
PE 61.8 35.9 32.2 24.5 rising aspirations of domestic consumers. We expect TIL’s revenues to
EV/ EBITDA 38.8 25.2 21.4 16.2 grow at a CAGR of 28% to | 9,751 crore in FY10-13E driven by strong
P/BV 21.4 15.4 11.4 8.5 volume growth in the jewellery and watches segments. We are
Target P/E 64.3 37.3 33.5 25.5 initiating coverage on the stock with an ADD rating.
Target Ev/ EBITDA 40.4 26.2 22.2 16.8
Target P/BV 22.2 16.0 11.8 8.8 Jewellery to remain key growth driver; other segments to aid growth
TIL has ~40% market share in the domestic organised jewellery market.
Stock Data With a diverse product portfolio (catering to all income groups), trusted
Bloomberg Code TTAN:IN brand and expanded retail presence we believe TIL will be able to attract
Reuters Code TITN:BO more customers from the domestic unorganised retail sector. We forecast
Face Value (|) 10 volume and value growth of 13% CAGR in jewellery segment in FY10-13E
Promoters Holding 53.4 and expect the jewellery segment to contribute ~75% to TIL’s topline.
Market Cap (| cr) 15,479 With the planned retail expansion we expect 21% and 54% (albeit on a
52 week H/L 4242 / 1766 small base) CAGR in the watches and eyewear segment, respectively,
Sensex 18,351
during FY10-13E.
Average volumes 124,672
Margin expansion and better working capital management
Comparative return matrix (%) We expect TIL’s EBITDA margins to improve by ~113 bps to 9.6% in
1m 3m 6m 12m FY10-13E driven by a diverse product portfolio, introduction of premium
TIL (0.46) 3.74 5.09 94.13 segment products, improvement in working capital and a decline in
Pantaloon (1.96) (27.82) (45.80) (33.05) losses in the eyewear segment.
Shoppers Stop 4.13 (4.82) 10.88 79.60
Rajesh Exports (18.12) (7.73) 15.04 4.74
Valuation
At the CMP of | 3487, the stock is trading at P/E of 32.2x in FY12E and
Gitanjali Gems (9.25) 12.36 (8.65) 91.37
24.5x in FY13E. We expect TIL’s standalone revenues to grow at 28%
CAGR to | 9,751 crore in FY10-FY13E driven by aggressive expansion
Price movement (Stock vs Nifty)
plans in jewellery, watches and eyewear markets. We forecast margin
7000 5000 accretion due to rising share of premium products in the overall product
6000
4000 mix and decline in losses in the eyewear segment. We value the stock
5000
4000 3000 using DCF methodology and initiate coverage with an ADD rating.
3000 2000 Exhibit 1: Key financials
2000
1000 (| Crore) FY09 FY10 FY11E FY12E FY13E
1000
Total Revenues 3,804 4,675 6,277 7,657 9,751
0 0
EBITDA 297 396 606 713 935
Mar-10 Jun-10 Sep-10 Dec-10
Net Profit 159 250 431 480 632
NIFTY Titan Industries Ltd PE (x) 97.4 61.8 35.9 32.2 24.5
Target PE (x) 101.2 64.3 37.3 33.5 25.5
Analyst’s name EV/EBITDA (x) 52.5 38.8 25.2 21.4 16.2
Bharat Chhoda P/BV (x) 28.1 21.4 15.4 11.4 8.5
bharat.chhoda@icicisecurities.com RoNW (x) 32.2 39.2 49.8 40.5 39.6
RoCE (%) 36.0 44.0 59.9 52.4 51.5
Dhvani Modi Source: Company, ICICIdirect.com Research
dhvani.bavishi@icicisecurities.com

ICICIdirect.com | Equity Research

ICICI Securities Limited

Share holding pattern (Q3FY11)

Company Background
Titan Industries Ltd (TIL) is the pioneer in the speciality retail market in
Shareholder Holding (%)
India with leadership position in watches, jewellery and eyewear retail
Promotors 53.4
segments. It was established in 1985 as a joint venture between the Tata
FIIs 10.4
Group and the Tamil Nadu Industrial Development Corporation (TIDCO) to
DIIs 8.6 manufacture watches. Later, the company diversified into the jewellery (in
General Public 27.6 1995) and eyewear (2007) businesses. In FY10, the jewellery segment
contributed 75% to total revenues, followed by the watches (22%),
eyewear (2%) and precision engineering (1%) segments.
Promoter & Institutional holding trend (%)
TIL is the world’s fifth largest integrated watch manufacturer with a
53
market share of ~65% in the domestic organised watch market (customer
60 53 53 53
base of ~80 million). The company has several popular brands in this
50
segment including Titan, Sonata and Fastrack. Further, TIL enjoys ~40%
40
30
share in the organised jewellery retailing market where the company
19 20 20 19
20 offers gold and diamond jewellery through its popular brands - Tanishq,
10 Gold Plus and Zoya. TIL also has a presence in the branded eyewear
0 business. The company is present in the retail format in all three market
Q3FY11 Q2FY11 Q1FY11 Q4FY10 segments with a total space of ~0.77 million square feet (msf). In 2005,
Promoters Institutional investors TIL entered the precision engineering business and offers design services
to companies operating in industries such as aerospace, automotive, oil
exploration & production and machine building and automation business.
TIL’s manufacturing facilities are located in Aurangabad, Dadra, Hardwar,
Piparia and Rakholi. The company has sales and marketing offices in the
US, the UK, Russia, China, South Africa and India. The company is
headquartered in Hosur, Tamil Nadu with staff strength of over 4,300.

Exhibit 2: Revenue mix Exhibit 3: Segmental break-up

100 10,000
29 24 22 20 20 19
80 8,000

60 6,000
| crore
%

7,290
40 73 75 72 75 75 4,000
68

5,747
4,499
3,497

20 2,000
2,760
2,026

- -
FY08 FY09 FY10 FY11E FY12E FY13E FY08 FY09 FY10 FY11E FY12E FY13E

Jewellery Watches Eyewear Others Jewellery Watches Eyewear Others

Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research

TIL’s revenues grew impressively at 34% CAGR to | 4,675 crore in FY05-

FY10 boosted by strong growth in the jewellery segment (46% CAGR).
The robust growth in the jewellery segment was fuelled by the major
expansion drive by the company (148 stores in Q3FY11 vs. 86 in FY05)
and rise in gold prices (9% increase during FY10). On the other hand, the
watches segment grew at 14% CAGR in FY05-10 driven by strong
nationwide reach (316 stores in FY10 vs. 195 in FY05), large service
network and robust portfolio of distinctive brands.

ICICIdirect.com | Equity Research

Page 2
ICICI Securities Limited
Exhibit 4: Store details as of Q3FY11
Formats No. of Stores
Watches 342
World of Titan 303
Fastrack - Stores 27
Fastrack - Kiosks 10
Helios 2
Jewellery 148
Tanishq 117
Gold plus 29
Zoya 2
Titan Eye+ 122
Total 612
Source: Company, ICICIdirect.com Research

Exhibit 5: Like-to-like sales growth in 9MFY11

100
100

75

44 47 45 46
(%)

50 38

25 13 13

0
World of Tanishq Titan Fast track Gold Plus Helios Zoya Watches -
Titan Eye+ Large
formats

Source: Company, ICICIdirect.com Research

Exhibit 6: Sales growth ( in value terms) of TIL’s major brands in 9MFY11

80
67
70
60
47 46
50
(%)

40
30
21
20 13
10
0
Tanishq Gold Plus Titan Titan Eye+ Zoya

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 3
 ICICI Securities Limited

Investment Rationale
Increased discretionary spending to drive TIL’s growth
Increased share of discretionary items in households wallet
The share of discretionary spending is expected to reach
We believe that the discretionary spending in India will receive a
~70% in 2025E (vs. 52% in 2005) on the back of strong
significant boost primarily driven by expectation of robust economic
macroeconomic growth, favourable demographics and
growth (GDP growth at ~9% CAGR in FY10-15E according to Economic
rapid rise of organised retail
Intelligence Unit), the rapid rise in the middle class population and
improving disposable income. According to McKinsey Global Institute
(MGI), the average household disposable income in India is expected to
grow at a 5% CAGR to | 319,518 in 2010-25E on the back of ~10 times
rise in middle class households in 2025E (128 million vs. 13 million
households in 2005).
In addition, India is blessed with favourable demographics as the share of
working population in the total population is expected to reach ~68% in
2025E (vs. 63% in 2005), pushing household discretionary spending to
~70% of the total household spending in 2025E (vs. 52% in 2005). Also,
the rapid rise in organised retail in the domestic market, which is
expected to grow at a 35% CAGR to US$67 billion in CY10-CY14E as per
Business Monitor International (BMI) estimates, provides credence to the
consumption growth story in the country.
Exhibit 7: Household spending shifting from basic necessities to discretionary items…

Housing and utilities

100
12 10 Household products
3 3
7 10 Personal products and services
75 Discretionary
17 20 Transportation
Spending
5 Communication
6
(%)

50 9
6 Education and recreation
12 Wellness
25 5
42 Necessities Apparel
25 Food, beverages, and tobacco
0
2005E* 2025F

Source: MGI, ICICIdirect.com Research, *Estimated, Household spending is in Indian rupees with 2000 as base year

Exhibit 8: …driven by rapid pace of urbanisation… Exhibit 9: …and rising number of middle class households

1,600 40 44 375
23
30
1,200 28 33 300 8
(Nos in million)
(Million)

2
225 148
(%)

800 22 31
85

400 11 150
186 180
0 0 75 151

2001 2008 2030E 0

2008 2020E 2030E
Total population Urban Population
Urbanization rate - RHS Lower Class Middle Class Upper Class

Source: MGI, ICICIdirect.com Research Source: MGI, ICICIdirect.com Research; Classes are based income levels with the
‘Lower’ class representing income of <Rs 200,000 per annum; ‘Middle’ class
between Rs 200,000 to Rs 1,000,000 per annum ; and ‘Upper’ class >Rs 1,000,000
per annum

ICICIdirect.com | Equity Research

Page 4
ICICI Securities Limited

Exhibit 10: Rising working population expected to push… Exhibit 11: … average disposable income at 5% CAGR in 2010-25E

80 68 360,000 319,518
63 66
70
60 270,000 246,805
50 38 34 32 190,639
(%)

40
180,000 147,255

(|)
30
20 113,744
10 90,000
0
2005 2015E 2025E 0
2005 2010 2015E 2020E 2025E
Working Population Dependents

Source: MGI, ICICIdirect.com Research, Working population: 15-64 years Source: MGI, ICICIdirect.com Research

In our view, TIL has one of the best exposures in the fast growing
discretionary spending in India given its strong brand equity, leadership
position in the lifestyle segments (such as watches, jewellery and
eyewear) and improving geographical reach in Tier II and Tier III cities.
Initially, TIL was targeting only upper middle class consumers. However,
the acceptance of organised retail in the country and rising consumer
confidence has helped the company to start catering to consumers in the
mass and value segments. As a result, the company operates multiple
retail formats that take care of specific requirements of consumers in
different income groups.

With the robust distribution network, strong brand Exhibit 12: TIL- product portfolio
awareness and presence in the mass market and premium Consumer Categories Retail Format Products
segment, TIL has one of the best exposures in Watches
discretionary consumption in lifestyle segments Mass World of Titan, Fast track Titan, Fastrack, Zoop
Value Sonata
Premium Helios Xylys, Nebula
Jewellery
Mass Tanishq
Value Goldplus
Premium Zoya
Eyewear
Mass Titan Eye+ Titan Eye+, Fastrack, Dash
Source: Company, ICICIdirect.com Research

In addition to the in-house brands, TIL stores provides access to popular

international brands to its customers in the watches and eyewear
segments. These products have higher-than-average margin profile and
are typically targeted at premium consumers. We believe TIL will remain
the key supplier of these international brands given its large footprint in
the speciality retail market and strong brand equity. In our view, it will be
difficult for any international retailer to replicate the distribution reach and
create brand awareness on par with TIL in the near future.

ICICIdirect.com | Equity Research

Page 5
ICICI Securities Limited

Exhibit 13: TIL- International brands

Segments International Brands

The Indian jewellery market is expected to grow to Hugo Boss, fcukTM Tommy Hilfiger, Versace, Seiko, Movado,
Watches Citizen, Fossil, DKNY, Nina Ricci, Roberto Cavalli and Esprit
~US$35-40 billion by FY16E driven by robust domestic
Gucci, D&G, Armani, BOSS, Esprit, Daniel Swarowski and
demand for gold jewellery and improving purchasing power
Eyewear Mont Blanc
of the middle class population
Source: Company, ICICIdirect.com Research

Jewellery segment
Shift towards branded jewellery gaining momentum...
The Indian jewellery market is the largest in the world with an estimated
size of ~US$19 billion (~| 90,000 crore) in FY10, as per World Gold
Council (WGC) estimates. Historically, the country has accounted for
~25% of the total world gold demand driven by the strong association of
gold jewellery in social customs (mostly in wedding and other special
occasions) and aspirations of an average Indian family to own gold as an
investment option. However, the domestic jewellery market is still
dominated by neighbourhood jewellers (characterised by
unorganised/unbranded market), which constitute ~94% of the total
market while the branded segment constitutes the rest.
The World Gold Council expects the Indian jewellery Exhibit 14: Indian jewellery market to grow at a CAGR of 12% during FY10-16E
market to grow from $19 billion in FY10 to $38 billion in
FY16E Domestic jewellery
40 38
market to double by
35 FY16
30
25
$ billion

19
20
15
10
5
0
FY10 FY16E

Indian Jewellery Market

The jewellery and watches segments present a strong
business proposition for players in the discretionary
consumption market due to the high margins associated
with these segments
Source: World Gold Council, ICICIdirect.com Research
The domestic jewellery market presents a significant growth opportunity
as the total market size is expected to reach ~US$38 billion by FY16E
(according to the World Gold Council) primarily driven by:
• Improved awareness among consumers, primarily young and
educated people in the metros and Tier I cities, who have
increasingly shown preference for branded jewellery due to the
benchmarking of quality by jewellery retailers and availability of
jewellery with contemporary designs
• Emergence of modern organised retail as a value proposition for
the jewellery industry in terms of brand and fashion. Organised
retailers also provide higher transparency and better after-sales
services
In our view, the organised players in India will be the primary beneficiary
of the rising opportunity in the domestic jewellery market as they are able
to charge a premium from consumers by offering quality products and

ICICIdirect.com | Equity Research

Page 6
ICICI Securities Limited

services. On the other hand, the unorganised jewellery market in India is

overcrowded (with the more than 300,000 players) and operates on very
low margins.

Exhibit 15: Jewellery and watches have higher margin profile vs. other items under
discretionary spending

40
Jewellery & Watches

30

Apparel

RoCE (%)
Pharma & Wellness
20 Food & Grocery

Books & Music

10 CDIT*
Footwear Home
0
0 2 4 6 8 10 12 14
EBITDA (%)

Source: Technopak, ICICIdirect.com Research, Bubble size represents sales psf

* - Consumer Durables & IT Products

With the strong business proposition attached to the domestic organised

jewellery market, several players started their operations in the last
decade such as Gitanjali Group (Gili, 1994), Tata Group (Tanishq, 1995),
Sanghavi Exports (Sangini, JV with Gitanjali Group, 2004), Suhashish
Diamonds (Ishi’s, 2003), Dhanraj Dhadda Group (Scintillating, 2003), Rosy
Blue Group (Orra, 2004), Rajesh Exports (Shubh Laabh, 2006), etc.
Further, major retail chains such as Lifestyle, Shoppers Stop, Big Bazaar
and Pantaloons have also started jewellery sections in their stores in
order to benefit from the rising consumer preference towards the
organised retail market.
Exhibit 16: Leading players in India have announced strong expansion plans in the next one or two years
Jewellery segment turnover
Company in FY10 (| Crore) Number of Outlets (FY10) Announced plans

TIL 3,498 145 stores Planning to add 16 Tanishq and 1 Gold plus stores in the next 2-3 years
485 owned stores, 185 franchises and
Gitanjali Group 3,636 2000 shop in shop ~200 new franchise stores in FY11E
Rajesh Exports NA 26 stores Planning to increase total store strength to 350 in the next 1-2 years
Reliance Jewels NA 22 stores Planning to add 50 new stores in the next 1-2 years
Big Bazaar (Navras) NA 49 stores ~12-15 new Navras stores are expected to be added in FY11E
Source: Company, ICICIdirect.com Research

In our view, the demand for gold jewellery (constituting ~75-80% of the
total gold demand) in the domestic market will remain strong in the next
one or two quarters driven by the onset of the festive/marriage season in
the country. Further, the easing of the liquidity crunch in the domestic
market (after the economic slowdown in 2009-10) and rising discretionary
spending from the middle class provides significant support to long-term
jewellery demand in India.
Although jewellery demand is highly susceptible to a rise in gold prices
due to deferral of purchases in a rising price environment, we have
observed robust gold demand in 9MFY11. Despite a 25% increase in
prices, domestic demand increased ~10% during the same period.

ICICIdirect.com | Equity Research

Page 7
ICICI Securities Limited

However, we remain cautious on the steep rise in gold prices, which is

the key deterrent to demand growth for gold jewellery.
Exhibit 17: Gold demand remains firm despite rising prices
350 24,000

280 20,000
16,000

(|/10 gm)
210
(Tonnes)

12,000
140
8,000
70 4,000
0 0
Jun '05

Sept '05

Jun '06

Sept '06

Jun '07

Sept '07

Jun '08

Sept '08

Jun '09

Sept '09
Mar '05

Jun '10*

Sept '10*
Dec '05

Mar '06

Dec '06

Mar '07

Dec '07

Mar '08

Dec '08

Mar '09

Dec '09*

Mar '10*

Dec '10*
Domestic gold demand - LHS Gold Prices (|/10 gm) - RHS

Source: WGC, ICICIdirect.com Research,* Provisional demand (tonnes)

…expected to benefit TIL

TIL has the first mover advantage in the branded jewellery market and
enjoys a market share of ~40%. The company has created a robust brand
identity in the domestic jewellery market by guaranteeing the purity of its
gold and improving its retail footprint (148 jewellery stores in 75 towns as
on Q3FY11 vs. 86 in FY07). As a result, TIL has been successful in
exploiting the low consumer trust in the unorganised gold jewellery
market that is plagued by high prevalence of under karatage. With the
Strong brand equity, focus on purity of gold jewellery, benchmarking of jewellery quality and improving customer trust, the
robust in-house design capability and rapid expansion share of the jewellery segment in TIL’s total revenue increased to 75% in
plans make TIL a formidable player in the domestic FY10 from 49% in FY05.
organised jewellery market
We believe TIL will be able to maintain its leadership position in the
growing domestic gold jewellery market due to the following favourable
reasons:
• Trusted brand presence primarily due to the association with the
respected Tata group
• Continuous introduction of new collections in branded jewellery,
which is increasingly being accepted as a fashion accessory
• Continuous design innovation on the back of robust in-house
design capability
Additionally, TIL is strongly focused on expanding its presence by
opening new stores, which, in our view, has been one of the key
strategies of the management in improving its jewellery sales. During
FY05-10, the company has added 50 new Tanishq stores primarily in Tier I
and Tier II cities.
Further, TIL is also experimenting with large format stores in metros and
Tier I cities. According to the management, the company has received an
encouraging response from the 20,000 sq ft Tanishq store in Chennai that
was opened in September 2009. TIL has also started focusing on rural and
semi-urban areas (by opening Gold Plus stores). This represents an
estimated jewellery market size of ~| 30,000 crore. In our view, TIL will be
successful in establishing its presence in semi-urban and rural regions as
this market is highly fragmented in nature with the high prevalence of
under karatage.

ICICIdirect.com | Equity Research

Page 8
ICICI Securities Limited

With the significant initiatives from the management in terms of

improvement in visibility and rising share of jewellery in overall
discretionary spending of the middle class, we believe the share of
jewellery segment revenues in TIL’s total revenues will remain high at
~75% in FY13E.

Exhibit 18: Jewellery segment to remain dominant revenue driver for TIL in FY10-FY13E

12,000 74.8 80
Revenues from the jewellery segment are expected to
74.8 75.3 75.1
grow at 28% CAGR in FY10-13E. Its contribution to the 72.6
9,000 67.7 60
overall topline is expected to remain stable at ~ 75% in the
61.7
forecast period

(| Crore)
53.9

(%)
6,000 48.7 40

3,000 20

0 0
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Jewellery revenues Total revenues Share of jewellery - RHS

Source: Company, ICICIdirect.com Research

As a result, we have forecast revenues from the jewellery segment will

grow at 28% CAGR to | 7,290 crore in FY10-13E driven by rising volume
growth of 13% CAGR (vs. decline of 2% in FY08-10).

Exhibit 19: Jewellery segment revenues to grow at 28% CAGR in FY10-FY13E

FY08 FY09 FY10 FY11E FY12E FY13E
Volume ('000 units) 2,156 2,137 2,091 2,205 2,515 2,982
YoY Growth (%) -18.5 -0.9 -2.1 5.4 14.1 18.5
ASP* (|/unit) 9,400 12,918 16,723 20,402 22,851 24,450
YoY Growth (%) 92.8 37.4 29.5 22.0 12.0 7.0
Revenues (| Crore) 2,026 2,760 3,497 4,499 5,747 7,290
YoY Growth (%) 57.1 36.2 26.7 28.6 27.7 26.8
Source: Company, ICICIdirect.com Research, *Average selling price

Strong product mix to boost margins

Focus on high margin diamond jewellery is expected to
boost the margins of the jewellery segment
In addition to the plain gold jewellery, TIL has introduced diamond
jewellery in its product portfolio, which typically has a high gross margin
profile (~40% vs. ~20% for plain gold jewellery). The company started
selling diamond jewellery in FY10 through its Zoya stores and is targeting
premium and young consumers in metros and Tier I cities. According to
the management, the introduction of diamond jewellery was primarily on
account of slowing demand for gold jewellery due to rising gold prices in
FY10. We believe TIL has significantly benefited from the introduction of
diamond jewellery in its product portfolio as diamond jewellery sales
constituted nearly one-third of its total jewellery sales in Q3FY11,
indicating a positive response from consumers.
Further, TIL is planning to introduce low-priced diamonds in the 18 carat
category for the value and mass segment that is more affordable than the
highly-prevalent 22 carat jewellery in India. With the growing acceptance
of diamond jewellery among consumers, strong in-house design
capability and rising consumers aspirations, we believe share of diamond
jewellery in TIL’s jewellery revenues will grow to ~40% in the next three

ICICIdirect.com | Equity Research

Page 9
ICICI Securities Limited
The EBIT margin of the jewellery segment is expected to
expand to 7.5% in FY13E vs. 5.8% in FY09
TIL uses ‘Gold on Lease’ facility to hedge its gold inventory
from the adverse movement in gold prices
ICICIdirect.com | Equity Research
to four years. As a result, we expect the EBIT margin of the jewellery
segment to expand by 41 bps to 7.5% in FY13E vs. 7.1% in FY10.
Exhibit 20: EBIT margin of jewellery segment to expand by 41 bps in FY10-13E driven by rising
share of high margin diamond jewellery in TIL’s product mix
7.5 7.5
8 7.2
7.1
6.7
5.9 5.8
6 5.3
4.6
(%)
4
0
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
Source: Company, ICICIdirect.com Research
Also, effective from April 1, 2008, TIL linked the making charges (on gold
jewellery) to gold prices in order to protect its margins. The company
charges between 16% and 20% of gold prices as making charges for the
gold jewellery. This has resulted in stable operating margins for the
company’s jewellery segment as against the prior period when TIL used
to apply fixed making charges, thus exposing itself to margin volatility.
‘Gold on Lease’ facility to hedge volatility in gold prices
TIL has significant inventory exposure to the movement in gold prices as
there is a time lag between the purchase of gold and sale of gold as
jewellery. An un-hedged position on gold inventory results in mark-to-
market gains or losses when there is a fluctuation in gold prices.
The company has devised a ‘Gold on Lease’ facility to minimise its
exposure to volatility in gold prices. Under this arrangement, TIL leases
gold from foreign banks and pays rent on it till it is consumed. In this
process, the cost of gold is fixed one day prior to actual sales and they
announce the same rate to all the stores for the next day’s sales. Through
this arrangement, TIL reduces its exposure to gold price fluctuations by
reducing the time lag between the purchase of gold and sale of gold to
just one day. This strategy ensures hedging to the extent of 90-95%. Also,
TIL does not need to carry any inventory on its books, thereby preventing
any marked to market losses.
Page 10
ICICI Securities Limited

The domestic watch market is dominated by the low-end
consumer segment in value terms and mass consumer
segment in volume terms
Watch segment
Domestic watch market offers significant opportunity with just 27% penetration
With volume sales of ~46 million units, the watch market in India is
estimated to be ~| 3,200 crore in FY10. In value terms, the domestic
watch market is dominated by the low-end segment, which accounts for
~43% of the total market share, followed by mid-upper (33%), premium
(13%) and mass (11%) segments. However, the mass segment (i.e.
watches priced below |. 400) accounts for ~65% in volume sales and
represents the largest consumer group.

Exhibit 21: Domestic watch market dominated by low end segment in value terms
Segmentation Price Bracket (|) Major Brands
Mass less than 400 Grey Market, Chinese
Low-end 400-1000 Sonata, HMT, Maxima
Mid-upper 1000-5000 Titan, Citizen, Timex, Swatch,Espirit
Swiss brands: Tissot, Omega Fashion
Premium above 5000 brands: Fossil,Calvin Klein, Giordano, Esprit
Source: Company, ICICIdirect.com Research

In our view, the domestic watch market presents a significant opportunity

for TIL as the market is significantly underpenetrated with just 27% of
Indians owning a watch. We expect this market to witness robust growth
in the next few years driven by strong demand from the young population
as they see watches more as a fashion accessory rather than time pieces.
Exhibit 22: Domestic watch market – 46 million pieces (FY10)
The domestic watch market presents significant
opportunity with high under-penetration and strong TIL has a ~60% market share of the
organised watch market and a 24% share
expected demand from the younger consumer segment
of the total watch market (volume-wise)

Organised
37%
Unorganised
63%

Source: Company, ICICIdirect.com Research

TIL has 60% market share in the organised watch market

TIL has a dominant position in the domestic watch market and accounts
for ~20% in volume sales and ~45% in value sales. The company is
present in 2,500 towns supported by over 11,000 dealers. TIL currently
offers its products through multiple retail formats, which include World of
Titan stores, Helios stores, Titan One stores, multi-brand outlets and large
format stores. These different retail formats offer products that span
across all the income segments. The World of Titan stores cater to
middle-income and upper-middle income customers, Helios stores cater
to higher income and brand conscious customers and Titan One stores
strengthens TIL’s presence in Tier III cities.

ICICIdirect.com | Equity Research

Page 11
ICICI Securities Limited
The EBIT margin of the watches segment will expand to
15.5% in FY13E vs. 14% in FY10
TIL has a strong product portfolio in the watches segment,
which caters to all consumer segments
ICICIdirect.com | Equity Research
Diverse product mix to improve margins in FY11E-13E
TIL has maintained its market leadership in the watch segment with the
help of a well-crafted portfolio of distinctive brands, which caters to all the
major consumer segments. With the introduction of ‘Sonata Super Fibre’
in the mass segment (in FY09), the company has strengthened its
presence in the less penetrated mass segment. Although it commands
high volumes, it has a significant presence of unbranded players. Also,
TIL is the largest player in the branded low-end segment and its Sonata
brand has highest volume sales of over 5 million watches per year. In our
view, the strong brand positioning in the high volume mass and low-end
segment will drive volume growth for the company in the next two or
three years.
TIL is targeting the middle income consumer group with flagship brand
Titan. The company presents diverse choices to consumers in this
segment in order to raise its share in the high discretionary purchases of
this consumer group. Some of the Titan sub-brands introduced recently
are Titan Raga Flora, Titan Purple, Titan Edge and Titan Zoop (sub-brand
for children). In our view, the middle income consumer segment presents
strong growth opportunities for TIL due to high disposable income and
rising aspiration level of this group, which drives multiple watch
ownership.
Exhibit 23: TIL’s brand positioning in domestic watch market
Source: Company, ICICIdirect.com Research
The company has strengthened its position in the premium segment by
introducing a new concept watch store, Helios, which sells high-end
watches such as Xylys and Nebula. These watches compete directly with
foreign brands such as Tissot, Omega, etc. In our view, this segment has
significant growth potential due to rising demand from the middle income
group consumers who have higher aspirations and view watches as
fashion accessories. In our view, the Helios store will be successful in
establishing itself as a premium watch seller, thus providing an upward
push to TIL’s margins. As a result, we forecast the EBIT margins of the
watch segment will improve by 153 bps to 15.5% in FY13E vs. 14% in
FY10.
Page 12
ICICI Securities Limited
TIL is expected to add 89 new watch stores in FY11E with
a strong focus on specific consumer groups
TIL has introduced ‘Fastrack’ as a youth-centric brand
primarily to capture the high discretionary spending of the
young consumers
ICICIdirect.com | Equity Research
Exhibit 24: EBIT margin of watch segment to expand by 153 bps to 15.5% in FY10-13E
18 16.4
15.7 15.3 15.5
15.0 15.0 15.0
15 14.0 14.0
12
(%)
9
0
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
Source: Company, ICICIdirect.com Research
Youth – a fast rising consumer segment
With ~28% of the total population in the age bracket of 15-35 years (as
per 2001 census), India has a large young population with longer working
life and high inclination for discretionary spending. Further, the majority
of the spending from this consumer group is centred towards fashionable
accessories such as footwear, sunglasses, jewellery, bags, etc. which
represents a significant opportunity for organised retailers. In order to
improve its market reach in the fast growing youth segment, TIL has
introduced ‘Fastrack’ (sub-brand of TIL’s flagship brand Titan), which is
primarily targeted at the 18-24 age group. The company has 37 Fastrack
stores (including kiosks) as on Q2FY10 and has forayed into the
accessories market with the launch of bags, belts, wallets and wristbands.
In our view, TIL is well positioned to capture the rising opportunity in the
youth segment with its strong brand presence and the management’s
focus towards presenting fashion accessories under a single store format.
The company’s Fastrack brand was primarily established as a youth-
centric brand, which focuses on designer watches as well as accessories
such as sunglasses, bags, belts, wallets etc. Also, the company is
planning to introduce new accessories such as footwear, jewellery, cell
phones, etc. in Fastrack stores in the next few years in order to capture a
higher share of the consumer’s wallets from this segment.
Aggressive expansion plans under way
Discretionary demand is highly dependent on a strong distribution
network that leads to increased visibility and brand awareness. With 342
watch stores (as on Q3FY11) covering major consumer segments, TIL has
the strongest branch network in the branded watch market in India.
TIL has strong expansion plans from specific consumer groups such as
youth market, premium segment, etc. The company is planning to open
16 new Fastrack stores in FY11E in order to cater to the strong demand
for fashion accessories from young consumers. Also, TIL is planning to
add ~14 new Helios stores (primarily for the premium consumer
segment) in FY11E with total stores reaching ~50 by FY13E-14E.
TIL has recently announced plans to open a new retail format ‘Titan One’
stores, which will primarily target Tier III cities. According to the
management, TIL is planning to open more than 20 Titan One stores by
the end of FY11E. Similarly, an aggressive expansion is planned for other
Page 13
ICICI Securities Limited

formats, taking the total number of stores in the watches segment to 405
by the end of FY11 (vs. 316 stores in FY10).
We forecast TIL’s revenues from the watch segment will grow at 21%
CAGR to | 1,810 crore in FY10-13E driven by the strong volume growth
(12% CAGR in FY10-13E vs. 4% in FY08-10) and rising share of watches
from the high value premium segment.

Exhibit 25: Revenues from watch segment to grow at 21% CAGR during FY10-13E
FY08 FY09 FY10 FY11E FY12E FY13E
Volume ('000 units) 10,286 9,694 11,036 12,525 14,297 15,682
YoY Growth (%) 14.7 -5.8 13.8 13.5 14.1 9.7
ASP (|/unit) 851 936 929 994 1,069 1,154
YoY Growth (%) 3.4 9.9 -0.7 7.0 7.5 8.0
Revenues (| Crore) 876 907 1,025 1,245 1,528 1,810
YoY Growth (%) 18.7 3.5 13.1 21.4 22.7 18.5
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 14
ICICI Securities Limited

With an expected market size of ~| 2,000 crore in FY13E
and lack of any competition, the domestic branded
eyewear market presents significant growth opportunities
for TIL
Eyewear segment
A high potential business for TIL
TIL ventured into the prescription eyewear business in 2007 and emerged
as the largest optical retail chain in India (102 stores as on Q3FY11). The
company sells products such as frames, sunglasses, contact lenses, ready
readers and other related accessories under three in-house brands –
Titan, Eye+ and Dash. According to the management, the in-house
brands account for ~60% of the total eyewear revenues while the rest
comes from third-party brands (such as Gucci, D&G, Armani, BOSS,
Esprit, Daniel Swarovski and Mont Blanc).
TIL has a well placed strategy for expansion in the domestic eyewear
market, which is expected to grow rapidly primarily driven by
urbanisation, penetration of TV & computers and poor eye health due to
lifestyles/improper diet. The company is planning to expand its reach in
residential areas as the eyewear market is characterised by frequent visits
by consumers and short eyewear lifetime (nearly three to four years).
Further, TIL’s management is optimistic about the strong market potential
as nearly ~30% of the total population (~300 million) needs correction in
vision, representing a market size of ~25-30 million units per annum (|
1,500-1,800 crore per annum). As a result, the company is planning to add
~43 new stores in FY11E.

Exhibit 26: Eyewear market size in India

2010 2011E 2012E 2013E 2014E 2015E
India population (cr) 118.4 120.2 122.0 123.8 125.6 127.4
Population need correction (%) 30.0 30.0 30.0 30.0 30.0 30.0
Population need correction (cr) 35.5 36.1 36.6 37.1 37.7 38.2
Eyewear users (%) 25.0 26.0 27.0 28.0 29.0 30.0
Total users (cr) 8.9 9.4 9.9 10.4 10.9 11.5
Repeat purchases (years) 3.5 3.5 3.5 3.5 3.5 3.5
Annual purchases (cr units) 2.5 2.7 2.8 3.0 3.1 3.3
Average selling Price (|) 550 589 630 674 721 771
Annual market revenue (| cr) 1,396 1,577 1,778 2,002 2,250 2,526
Source: Company, ICICIdirect.com Research

Although the eyewear segment contributed only 2% to TIL’s topline in

FY10, we expect higher contribution from this segment once the
company’s brand gains popularity. We forecast the revenues from the
eyewear segment will grow at 54% CAGR to | 350 crore in FY10-13E.

Exhibit 27: TIL’s eyewear segment revenues are expected to grow at 54% CAGR in FY10-13E
FY08 FY09 FY10 FY11E FY12E FY13E
Volume ('000 units) 572 854 1,481 2,211 3,097 4,646
YoY Growth (%) 50.5 49.2 73.5 49.3 40.1 50.0
ASP (|/unit) 708 760 650 683 717 753
YoY Growth (%) 6.6 7.3 -14.4 5.0 5.0 5.0
Revenues (| Crore) 41 65 96 151 222 350
YoY Growth (%) 60.4 60.0 48.5 56.8 47.1 57.5
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 15
ICICI Securities Limited

Risks and Concerns

Volatility in gold prices
Jewellery demand is highly dependent on the movement in gold prices
with stable/falling prices leading to an improvement in jewellery demand
and vice versa. The significant jump in gold prices can lead to a significant
slowdown in jewellery demand in the domestic market and negatively
impact our demand forecast.
Increasing competition from international watch manufactures
Several international watch majors such as Tissot, Omega, Rolex Fossil,
Calvin Klein, Giordano, Esprit and Tommy Hilfiger complete directly with
TIL primarily in the premium watch category. With growing disposable
income and rising aspirations levels, India presents an attractive market to
the foreign premium watch manufacturers. TIL is highly susceptible to an
increase in competition from foreign brands, which can negatively impact
our revenues and margin forecast in the watches segment.
Higher rentals in short-term
With robust expansion plans in FY11E (149 new stores), TIL is exposed to
rising rental expenses on new stores as well as existing stores that are on
lease. A higher than expected increase in rental expenses can negatively
impact the company’s expansion plans, leading to reduced profitability.
Slower than expected recovery from economic slowdown
TIL’s products fall under the discretionary category, which has high delta
with the growth in disposable income and is highly dependent on the
healthy growth of the economy. A slower than expected recovery in the
economy can lead to lower spending on discretionary items (and more on
necessities) leading to reduced volume growth for the company. Also,
middle class consumers are highly likely to delay upgrading to premium
products in the event of a delay in economic recovery. This, in turn, can
negatively impact our revenues and margin forecasts.
Continued dominance of unbranded jewellery
The jewellery market in India is dominated by unorganised players with
over 90% of the market share. In the recent past, TIL has been able to
increase its market share by targeting young and educated customers in
metros and Tier I cities with the guarantee on purity of gold and
presenting contemporary designs. However, TIL’s incremental growth is
dependent on its ability to attract a large consumer base in Tier II and Tier
III cities who still rely on family jewellers.
Quality of franchisee products
We expect a significant increase in the number of TIL’s franchisees with
the expansion of the company in suburban and rural markets. As product
quality is one of the key drivers of TIL’s growth, any dilution in the quality
of the jewellery products offered by franchisees would have an adverse
impact on the company’s brand image.

ICICIdirect.com | Equity Research

Page 16
ICICI Securities Limited

Financials
CAGR of 28% expected in TIL’s revenues in FY10-13E

We expect TIL’s revenues to grow at 28% CAGR to | 9,751 crore in FY10-

13E driven by growth of 28% CAGR in revenues from the jewellery
segment (| 7,290 crore) and growth of 21% CAGR in the watches
segment (| 1,810 crore). In our view, the jewellery segment will be the key
growth driver for TIL’s topline with revenue contribution of over 75%
during FY10-13E (vs. 54% in FY06). Also, we forecast volume sales in
jewellery segment will grow at 13% CAGR during FY10-13E (vs. a decline
of 2% CAGR in FY08-10) driven by rising preference towards branded and
designer jewellery from the middle class (that is a huge consumer base)
and strong brand presence of TIL in the domestic market. The topline
growth is expected to be further supported by strong traction in the
watches segment with revenue growth of 21% CAGR to | 1,810 crore in
FY10-13E (vs. 8% in FY08-10) and volume growth of 12% CAGR (vs. 4%
CAGR in FY08-10).

Exhibit 28: Revenues to grow at 28% CAGR to | 9,751 crore in FY10-13E

12,000 48
9,751
9,000 7,657 36
6,277
(| Crore)

4,675

(%)
6,000 24
3,804
2,994
3,000 2,090 12
1,440

0 0
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Revenues - Standalone YoY Growth - RHS

Source: Company, ICICIdirect.com Research

Exhibit 29: Jewellery segment to continue to dominate TIL’s topline in FY10-13E

100

29 24 22 20 19
35 20
75 44
(%)

50

68 73 75 72 75 75
62
25 54

0
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Jewellery Watches Eyewear Precision Engineering

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 17
ICICI Securities Limited

Margins expected to expand

With the significant revival of the product mix by inclusion of high margin
products such as diamond jewellery (with margin profile of ~2x plain gold
jewellery) and rising profile of premium products in the watches segment,
we expect TIL’s EBITDA margin to expand to 9.6% in FY13E (vs. 8.5% in
FY10). Further, we expect margins to get a push up from FY12E onwards
as the losses from the eyewear segment are expected to decline.

Exhibit 30: EBITDA margins to expand ~113 bps during FY10-13E

935
1,000 12

713
750 9
(| Crore) 606

(%)
500 396 6
297
251
250 198 3
154

0 0
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

EBITDA EBITDA margin - RHS

Source: Company, ICICIdirect.com Research

Exhibit 31: EBIT margins to expand ~198 bps during FY10-13E

1,000 890 10

750 676 8
568
(| Crore)

(%)
500 5
335
221 256
250 134 173 3

0 0
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

EBIT EBIT margin - RHS

Source: Company, ICICIdirect.com Research

Working capital requirement to increase

In our view, TIL’ working capital will increase to 32 days in FY13E (vs. 26
days in FY10 and 37 days in FY09) driven by rising inventory in the new
stores that are expected to come up in the next three years. However,
better inventory management at the existing stores are expected to keep
working capital days at manageable levels.

ICICIdirect.com | Equity Research

Page 18
ICICI Securities Limited

Working capital requirement to increase

ICICI Securities Limited
In our view, TIL’ working capital will increase to 32 days in FY13E (vs. 26
days in FY10 and 37 days in FY09) driven by rising inventory in the new
stores that are expected to come up in the next three years. However,
better inventory management at the existing stores are expected to keep
working capital days at manageable levels.

Exhibit 32: Working capital days at manageable levels in FY11E-13E

80
63.0
60

42.4 41.0
(Days)

37.3
40 31.5
26.0 28.1
22.0
20

0
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Source: Company, ICICIdirect.com Research

Return ratios expected to improve substantially

We expect TIL’s return ratios to improve significantly in FY11E-13E driven

by strong revenue growth and expansion in margins due to rising share
of high-margin premium products in the company’s product mix. The
reduction in losses in the eyewear division is also expected to boost
margins, going forward. Further, an improving asset turnover is expected
to push up the RoCE to 51.8% in FY13E vs. 44% in FY10.

Exhibit 33: Return ratios to improve in FY10-13E

70
60
50
40
(%)

30
20
10
0
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

RoCE RoNW

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 19
ICICI Securities Limited

We have valued TIL at | 3624/share using the DCF
methodology, which is at 4% premium to the CMP
Valuations
At the CMP of | 3487, the stock is trading at a P/E of 32.2x in FY12E and
24.5x in FY13E. We have valued TIL using the DCF methodology. Our
valuation is based on assuming a 10.4% WACC and 4% terminal growth.
We expect TIL’s standalone revenues to grow at 28% CAGR to | 9,751
crore in FY10-FY13E driven by aggressive expansion plans in the
jewellery, watches and eyewear segment leading to strong growth in
volume sales. We forecast margin accretion on the back of rising share of
premium products in the overall product mix and decline in losses in the
eyewear segments leading to growth of 36% CAGR in bottomline.
However, we believe the market is factoring in the growth potential of the
company given the 94% jump in the stock price in a year (vs. 4% in the
Sensex). Hence, we are initiating coverage on the stock with an ADD
rating and a target price of | 3624/ share (premium of 4% from the current
price).
Exhibit 34: DCF assumptions
WACC (%) 10.4
Terminal Growth (%) 4.0
PV of Free Cash Flows (| crore) 4,984
Terminal Value of Free Cash Flows (| crore) 11,193
Total Value of Free Cash Flows (| crore) 16,177
No. of Shares (in crore) 4.4
DCF-derived Price Target 3,624
Implied PE (on FY11E EPS) 33.5
Source: Company, ICICIdirect.com Research

Exhibit 35: P/E (1 year forward) - TIL

4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Mar-04

Sep-04

Mar-05

Sep-05

Mar-06

Sep-06

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Price Average 29.3x 33.7x 20.3x 15.8x

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 20
ICICI Securities Limited
Exhibit 36: Comparable valuation - TIL
CMP Market Cap P/E (x) EV/EBITDA (x) P/BV (x)
| | Crore FY12E FY13E FY12E FY13E FY12E FY13E
TIL 3,487 15,479 32.2 24.5 21.2 16.1 15.4 11.4
Pantaloon 274 5,950 16.0 10.1 5.3 5.1 1.5 1.6
Shoppers Stop 341 2,797 32.3 22.3 13.8 9.3 2.3 1.5
Rajesh Exports 110 3,179 10.4 8.6 10.0 8.0 1.7 1.4
Gitanjali Gems 234 2,008 5.8 3.6 6.3 4.3 0.7 0.6
Mean 889 5,883 19.3 13.8 11.3 8.5 4.3 3.3
Median 274 3,179 16.0 10.1 10.0 8.0 1.7 1.5
Source: Company, ICICIdirect.com Research

Exhibit 37: Healthy EBITDA margins

12.0 11.0 10.6

10.0 9.3 9.6

8.5
7.9
7.4
8.0 6.9

6.0
%

4.0
1.5 1.5
2.0

-
TIL Pantaloon Shoppers Stop Rajesh Exports Gitanjali Gems

FY12E FY13E

Source: Consensus Estimates, ICICIdirect.com Research

Exhibit 38: Best return ratios

60.0
52.4 51.5
50.0

40.0
30.9
30.0
%

21.2
20.0 12.8 12.6 14.1 13.0
10.0
- -
-
TIL Pantaloon Shoppers Stop Rajesh Exports Gitanjali Gems

FY12E FY13E

Source: Consensus Estimates, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 21
ICICI Securities Limited

Exhibit 39: Profit & loss account

| Crore FY09 FY10 FY11E FY12E FY13E
Net Sales 3,803 4,674 6,276 7,656 9,750
Growth (%) 27.0 22.9 34.3 22.0 27.3
Other Op. Revenues 0.9 0.6 0.7 1.0 1.3
Op. Expenditure 3,507 4,279 5,671 6,944 8,816
EBITDA 297 396 606 713 935
Growth (%) 18.5 33.0 53.2 17.6 31.2
Depreciation 42 60 38 36 45
EBIT 256 335 568 676 890
Interest 29 25 9 10 12
Other Income 4 11 35 19 25
Extraordinary Item 0 0 1 0 0
PBT 231 321 595 686 902
Growth (%) 14.0 39.4 85.3 15.2 31.5
Tax 72 71 164 206 271
Rep. PAT before MI 159 250 431 480 632
Minority Interest (MI) 0 0 0 0 0
Rep. PAT after MI 159 250 431 480 632
Adjustments 0 0 0 0 0
Adj. Net Profit 159 250 431 480 632
Growth (%) 5.8 57.5 72.3 11.3 31.5
Company, ICICIdirect.com Research, *Not Meaningful

Exhibit 40: Balance sheet

| Crore FY09 FY10 FY11E FY12E FY13E
Equity Capital 44 44 44 44 44
Reserves & Surplus 507 680 960 1,315 1,783
Shareholder's Fund 551 724 1,004 1,360 1,827
Borrowings 175 73 92 117 149
Unsecured Loans 0 0 0 0 0
Deferred Tax Liability 18 5 5 5 5
Source of Funds 745 802 1,101 1,482 1,981
Gross Block 530 561 621 797 947
Less: Acc. Depreciation 302 314 339 376 421
Net Block 228 247 282 421 526
Capital WIP 20 12 128 103 102
Net Fixed Assets 248 259 410 524 629
Intangible Assets 46 16 0 0 0
Investments 8 8 8 8 8
Cash 55 187 304 362 504
Trade Receivables 106 94 132 168 214
Loans & Advances 114 183 184 235 298
Inventory 1,203 1,340 1,842 2,354 2,988
Total Current Asset 1,478 1,804 2,462 3,118 4,004
Current Liab. & Prov. 1,035 1,284 1,779 2,168 2,660
Net Current Asset 443 519 683 950 1,344
Other Miscellaneous 0 0 0 0 0
Application of Funds 745 802 1,101 1,482 1,981
Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 22
ICICI Securities Limited

Exhibit 41: Cash flow statement

| Crore FY09 FY10 FY11E FY12E FY13E
Net Profit before Tax 231 321 595 686 902
Other Non Cash Exp 0 0 0 0 0
Depreciation 42 60 38 36 45
Direct Tax Paid 78 84 164 206 271
Other Non Cash Inc 4 11 16 19 25
Other Items 29 25 9 10 12
CF before change in WC 219 311 462 507 664
Inc./Dec. In WC -52 56 -46 -210 -252
CF from Operations 167 367 416 297 412
Pur. of Fix Assets -45 -24 -176 -150 -150
Pur. of Inv and Others 44 11 16 19 25
CF from Investing 0 -13 -160 -131 -125
Inc./(Dec.) in Debt -82 -103 19 26 32
Inc./(Dec.) in Net Worth 5 0 0 0 0
Others -81 -103 -158 -135 -177
CF from Financing -158 -206 -138 -109 -145
Opening Cash Balance 52 55 187 304 362
Closing Cash Balance 55 187 304 362 504
Company, ICICIdirect.com Research

Exhibit 42: Key ratios

Total Revenues 27.0 22.9 34.3 22.0 27.3
EBITDA 18.5 33.0 53.2 17.6 31.2
Adj. Net Profit 5.8 57.5 72.3 11.3 31.5
Cash EPS 11.5 54.6 51.1 10.1 31.0
Net Worth 26.4 31.4 38.6 35.4 34.4
Company, ICICIdirect.com Research, *Not Meaningful

Exhibit 43: Key ratios

FY09 FY10 FY11E FY12E FY13E
Raw Material 72.6 73.8 73.8 73.0 72.9
Employee Expenditure 6.1 5.9 5.5 6.2 6.0
Effective Tax Rate 31.1 22.1 27.5 30.0 30.0

Profitability Ratios (%)

EBITDA Margin 7.8 8.5 9.7 9.3 9.6
PAT Margin 4.2 5.4 6.9 6.3 6.5

Per Share Data (|)

Revenue per share 856.8 1,053.1 1,413.8 1,724.8 2,196.4
Book Value 124.2 163.2 227.0 307.0 412.3
Cash per share 12.3 42.1 68.6 81.4 113.5
EPS 35.8 56.4 97.2 108.2 142.3
Cash EPS 45.2 69.9 105.7 116.4 152.4
DPS 10.0 15.0 28.7 24.1 31.7
Company, ICICIdirect.com Research, *Standalone financials

ICICIdirect.com | Equity Research

Page 23
ICICI Securities Limited

Exhibit 44: Key ratios

Return Ratios FY09 FY10 FY11E FY12E FY13E
RoNW 32.2 39.2 49.8 40.5 39.6
ROCE 36.0 44.0 59.9 52.4 51.5
ROIC 15.7 14.7 21.7 25.7 24.0
Financial Health Ratio
Operating CF (| Cr) 167 367 416 297 412
FCF (| Cr) 129 356 220 147 262
Cap. Emp. (| Cr) 727 797 1,099 1,480 1,980
Debt to Equity (x) 0.3 0.1 0.1 0.1 0.1
Debt to Cap. Emp. (x) 0.2 0.1 0.1 0.1 0.1
Interest Coverage (x) 8.7 13.2 61.6 69.5 71.8
Debt to EBITDA (x) 0.6 0.2 0.2 0.2 0.2
DuPont Ratio Analysis
PAT/PBT 68.9 77.9 72.5 70.0 70.0
PBT/EBIT 90.2 95.8 104.7 101.4 101.4
EBIT/Net Sales 6.7 7.2 9.1 8.8 9.1
Net Sales/Total Asset 519.9 604.4 659.8 592.9 563.1
Total Asset/NW 1.4 1.1 1.1 1.1 1.1
(x times)
Working Capital FY09 FY10 FY11E FY12E FY13E
Working Cap./Revenues (%) 11.7 11.1 10.9 12.4 13.8
Inventory turnover 106.7 99.3 92.6 100.0 100.0
Debtor turnover 9.7 7.8 6.5 7.1 7.1
Creditor turnover 64.7 55.4 58.5 70.7 72.0
Current Ratio 1.4 1.4 1.4 1.4 1.5
(| crore)
FCF Calculation FY09 FY10 FY11E FY12E FY13E
EBITDA 297 396 606 713 935
Less: Tax 72 71 164 206 271
NOPLAT 226 325 442 507 664
Capex -45 -24 -176 -150 -150
Change in working cap. -52 56 -46 -210 -252
FCF 129 356 220 147 262
(x times)
Valuation FY09 FY10 FY11E FY12E FY13E
PE (x) 97.4 61.8 35.9 32.2 24.5
EV/EBITDA (x) 52.5 38.8 25.2 21.4 16.2
EV/Sales (x) 4.1 3.3 2.4 2.0 1.6
Dividend Yield (%) 0.3 0.4 0.8 0.7 0.9
Price/BV (x) 28.1 21.4 15.4 11.4 8.5
Company, ICICIdirect.com Research, *Not Meaningful

ICICIdirect.com | Equity Research

Page 24
 ICICI Securities Limited

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.

Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 0293

research@icicidirect.com

ANALYST CERTIFICATION
We /I, Bharat Chhoda MBA (FINANCE) Dhvani Modi MBA (FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the
views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be
directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities
Inc.

Disclosures:
ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading
underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of
companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities
generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts
cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and
employees (“ICICI Securities and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities
from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities
policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.

ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received
compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment
banking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companies mentioned in the report within a period of three
months following the date of publication of the research report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific
transaction. It is confirmed that Bharat Chhoda MBA (FINANCE) Dhvani Modi MBA (FINANCE) research analysts and the authors of this report have not received any
compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings
from Investment Banking and other business.

ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the
research report.

It is confirmed that Bharat Chhoda MBA (FINANCE) Dhvani Modi MBA (FINANCE) research analysts and the authors of this report or any of their family members does
not serve as an officer, director or advisory board member of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use
of information contained in the report prior to the publication thereof.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
to observe such restriction.

ICICIdirect.com | Equity Research