Motilal Oswal neutral on Titan Inds, target of Rs 3820

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Motilal Oswal neutral on Titan Inds, target of Rs 3820

Motilal Oswal has maintained neutral rating on Titan Industries with a target price of Rs 3820, in its June 13, 2011 research report.

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Motilal Oswal has maintained neutral rating on Titan Industries with a target price of Rs 3820, in its June 13, 2011 research report.

"Titan Industries, watch sales are likely to continue growing at 20% CAGR; EBIT margin should sustain at around the current 16%. Titan plans to add 60-70 World of Titan stores and 30 Helios stores during FY12. We believe margins will expand, as FY11 financials included one-time impact of ex-gratia bonus payment to employees, impacting watch margins. Consumer demand remains strong despite gradual increase in gold prices. The management is aiming at double-digit EBIT margin in this business in another couple of years. In FY11, EBIT margin for this business was 8.7%. The company plans to add 15 Tanishq stores (4 of these being large format stores; 1 opened in Mumbai with an area of 20,000sf) in FY12. We believe that rising footprint and large format stores will boost profitability, going forward."

"Eyewear expansion is on track. The company ended FY11 with 150 Titan Eye Plus stores. It plans to add another 100 stores in FY12 and aims at EBITDA breakeven in FY13. For precision engineering, it is targeting EBITDA breakeven in 1HFY12. The outlook for this business appears encouraging. Currently, Titan does not have any plans to sell or restructure the business unit. Fastrack is emerging as a key youth-centric brand and the company has extended it to segments like wallets, purses, belts and eyewear. The company has 50 Fastrack stores and we expect the number of stores to increase at a fast clip. We estimate annual sales for Fastrack at over Rs3b. Youth-centric designs and attractive pricing should make this brand a key growth driver. Titan does not have any plans to start jewelry retailing in the international market."

"Titan remains one of the best retail plays due to strong brands, leadership in watches, branded jewelry and sunglasses, and strong cash flows. We estimate 33% PAT CAGR over FY11-13, which factors in 160bp margin expansion. However, valuations at 34.6x FY12E EPS of Rs136.3 and 27.2x FY13E EPS of Rs173.6 leave little upside. We maintain our Neutral recommendation on the stock with a target price of Rs 3820," says Motilal Oswal research report.

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To read the full report click on the attachment