April 21, 2011 TITAN INDUSTRIES LTD.

HOLD
Recommendations Strong Buy Buy Hold Reduce Sell <= 1 year 1 - 2 yrs 2 - 5 yrs

TIL Industries Ltd (TIL) is the pioneer in the specialty retail market in India with leadership position in watches, jewellery and eyewear retail segments. It was established in 1985 as a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation (TIDCO) to manufacture watches. Dominance in watch segment: - TIL is the undisputed leader in Indias branded watch segment with a 65% market share. The company is the fifth largest watch manufacturer in the world & has a well balanced portfolio that runs the gamut from lower end brands to the luxury segments. Shift towards branded jewellery gaining momentum: - TIL is the largest jewellery retailer in India and the only player with a pan-India footprint. Its jewellery division contributes approx. 75% to total revenues, led by the popular Tanishq brand of products. Eyewear A strong growth opportunity: - TIL owns the largest optical retail chain in India with 122 stores and is looking to more than double its footprint by FY13. This segment of business has very high potential to grow, reason being nearly 30% of the total population requires vision correction after certain age and TIL being one the most reputed players in this field has a great chance to grow robustly. Increased discretionary spending to drive growth: - Discretionary spending in India will receive a significant boost primarily driven by expectation of robust economic growth. Higher disposable income, rapid rise in organized retail in the domestic market and improving economic conditions to drive the growth for the company. Based on FY13E consolidated numbers and assigning a PE multiple of 32, the fair value per share for the company works out to Rs 4,512

Strong Buy Expected Returns > 20% p.a. Buy Expected Returns from 10 to 20% p.a. Hold Expected Returns from 0 % to 10% p.a. Reduce Expected Returns from 0 % to 10% p.a. with possible downside risk Sell Returns < 0 %

STOCK DATA
BSE / NSE Code Bloomberg Code No. of Shares (Mn) Sensex / Nifty PRICE DATA CMP Rs (20th April 2011) Beta Market Cap (Rs mn) 52 Week High-low Average Daily Volume STOCK RETURN (%) Titan Industries Sensex Nifty SHARE HOLDING PATTERN (%) Promoter Institution Non Institution Total 30D 17% 9% 9% 3M 17% 2% 2% 500114/ TITAN TITAN IN EQUITY 44 19471 / 5851.65 4,055.5 0.78 180,017 4244 / 2010 126,106 6M 28% -2% -2% 1Y 98% 12% 12% 53.5 19.1 27.4 100.0

Financial Snapshot
Projections (Rs Mn)
Revenue Y-o-Y Growth % EBIDTA Y-o-Y Growth % PAT Y-o-Y Growth % EPS Rs BVPS Rs EBIDTA % NPM % ROE % PER x P/B Ratio
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FY09A
39,110 28% 3,092 20% 1,639 11% 37 126 8% 4% 29%

FY10A
47,791 22% 4,087 32% 2,513 53% 57 165 9% 5% 34%

FY11E
63,161 32% 6,463 58% 4,046 61% 91 245 10% 6% 37% 44.5 16.6

FY12E
78,272 24% 8,615 33% 5,438 34% 123 357 11% 7% 34% 33.1 11.4

FY13E
94,757 21% 9,874 15% 6,247 15% 141 486 10% 7% 29% 28.8 8.3

1 Year Price Performance (Rel. to Sensex)

240

Sensex
200 160 120 80

Titan

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April 21, 2011 BUSINESS PROFILE

TIL is the pioneer in the specialty retail market in India with leadership position in watches, jewellery and eyewear retail segments. It was established in 1985 as a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation (TIDCO) to manufacture watches. Later, the company diversified into the jewellery (in 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. TIL is the pioneer in the specialty retail market in India with leadership position in watches, jewellery and eyewear retail segments

Segment Reveune FY10

TITAN INDUSTRIES
3% 22%

Time Products

Jewellery

Precision Engineering

Eyewear
75%

Titan, Sonata, Fastrack, Xylys

Tanishq, Goldplus, Zoya

Automotive & Aerospace

Titan Eye+
Watches Jewellery Other

TIL is the worlds fifth largest integrated watch manufacturer with a market share of ~65% in the domestic organized watch market (customer base of ~80 million). The company has several popular brands in this segment including Titan, Sonata and Fastrack. Further, TIL enjoys ~40% share in the organized jewellery retailing market where the company offers gold and diamond jewellery through its popular brands - Tanishq, Gold Plus and Zoya. TIL also has a presence in the branded eyewear business. 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. TILs manufacturing facilities are located in Aurangabad, Dadra, Hardwar, Piparia and Rakholi. The company has sales and marketing offices in the US, UK, Russia, China, South Africa and India. The company is headquartered in Hosur, Tamil Nadu. Business Division
Store Details as of Q3 FY11 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
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TIL is the worlds fifth largest integrated watch manufacturer with a market share of approx 65% in the domestic organized watch market

Watches Jewellery Precision Engineering Eye Wear

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April 21, 2011 BUSINESS PROFILE

Watches: - Domestic watch market offers significant opportunity TIL is the undisputed leader in Indias branded watch segment with a 65% market share. The company is the fifth largest watch manufacturer in the world and has a well balanced product portfolio that runs the gamut from lower end brands (Sonata: Rs 275+) to the luxury segment (TIL Xylys: Rs 100,000+). While Indias watch market is estimated to grow at 8%, TIL has been able to achieve growth at a much faster pace of 20%, largely as consumers up trade from the unorganized segment. Further, the companys pan-India distribution network, innovative product designs, and the low penetration of watches in India should help sustain its strong growth trajectory. The total retail value of the Indian watch market is pegged at Rs.31 bn. The market is under-penetrated with only 27% ownership. In 2009-10, as many as 46 million watches were sold in India. Since FY06, the watch market has grown at a CAGR of 5.7%. There is a huge opportunity to target first time, replacement and multiple watch buyers. 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 (Rs 400) accounts for nearly 45% in volume sales and represents the largest consumer group. Indian market is extremely price sensitive Indian watch market is underpenetrated with only 27% ownership

Low Penetration

Titan's watch sales by value

Titan's watch sales by volume

15%

5% 15% 35%

27%
20% 50% 15%

73%

45%

Watch owners

Non owners

Titan

Sonata

Fastrack

Xylys,others

Titan

Sonata

Fastrack

Xylys,others

Successful product positioning We believe TIL has done commendably well in terms of positioning its products at every price point across the watch segment. Its lower-end Sonata range (sub-Rs 1,000) is aimed at consumers graduating from the unorganized segment, while Fastrack is positioned as a youth brand that finds appeal among teens and the younger age group. In the premium/luxury segment, the company has TIL and the Swiss-made Xylys which competes with high-end Swiss watches. The mass-market Sonata range remains the biggest brand in the TILs watch segment with a 45% volume share and a 15% value share; TIL contributes 35% of volumes and 50% of value with the balance coming from Fastrack. We note that Sonata was the fastest growing brand post the economic recovery. Now, however, all of the companys brands are doing well with Fastrack taking the lead, in turn improving the product mix. Strong brand awareness and presence in the mass market and premium segment

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April 21, 2011 TITANS BRAND POSITIONING

TIL has offerings across price points in the economy, mid and premium price bands. On top of this, the company also has brands targeting the youth, women and children. Economy: Its Sonata brand is positioned in the economy segment starting from Rs. 275. The Sonata brand competes against HMT and Maxima. It is positioned as a formal wear brand. Its Fastrack brand is also an economy brand targeting youth and positioned as a sporty brand. Mid: TIL is positioned at the mid price point from Rs.1000+ level upto the premium segment where Xylys takes over. TIL watches compete against Japanese companies: Citizen and Seiko. TIL is positioned mostly in the formal/classic wear segment. Swatch, Espirit, DKNY, Giordano and Tommy Hilfiger also compete in this price point but are positioned as Fashion and Sporty brands. Premium: Xylys and Nebula are premium brands positioned in the Rs.10000+ range. Xylys competes with Raymond Weil and Tissot. All three of them are formal wear brands. Nebula is at an even higher price point and is positioned as a formal wear brand. In the formal wear category it competes with Rado, Omega and Longines. TAG Heuer, Hugo Boss and Dior are also competitors in the same price band. However, all these brands are positioned as fashion/sports wear brands. Zoop: TILs brand targeting children. It is designed to convert customers into loyal brand users at an earlier stage thus enhancing customer lifetime value. Fastrack: TILs brand of watches, eyewear and personal accessories targeting the youth. It retails under independent stores and watches are sold in TIL showrooms and multi-brand outlets. TIL is the licensed vendor of Hugo Boss, Tommy Hilfiger and French connection. Leader in respective business segments Presence in all business segments

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April 21, 2011 BUSINESS PROFILE CONTD

Jewellery: - Glittering prospects Indias jewellery market is pegged at more than Rs.1000 bn. Out of this, gold jewellery accounts for 80% of the market and diamond studded jewellery is 15% of the market. As much as 90% of the Indian jewellery market is in the unbranded or unorganized sector. Amongst the organized players, TIL has the first mover advantage in this business with 40% market share of the organized segment. It started retailing jewellery in 1996. It now has three brands or formats: Gold Plus, Tanishq and Zoya. The urban market is huge with 60% of the market still being urban centric. However, in itself rural and semiurban opportunity is huge at more than Rs.400 bn. 90% of the Indian jewellery market is in the unbranded or unorganized sector.

Branded v/s Unbranded

10%
Income Rs (mn)

Jewellery
40000 35000 30000 25000 20000 15000 10000 5000 0

Sales by Value

40% 60%

90%

Branded

Unbranded

Rural, semi Urban

Urban

Leading jeweller in India with strong brand in Tanishq TIL is the largest jewellery retailer in India with 117 Tanishq boutiques, 29 Gold Plus stores and 2 Zoya stores. About 55% of these outlets are either managed or co-owned by the company, while 45% are franchisee based. Tanishq remains one of the strongest jewellery brands in the market with a 40% share in the branded segment and over 1.5mn customers (FY10). The company now plans to introduce large-formats stores under the Tanishq brand, ranging from 20,000sq ft to 25,000sq ft (since these enjoy a higher stock turnover and hence higher sales per square foot than smaller outlets). In FY11, the company intends to add 30,000sq ft of Tanishq space, taking the total to 330,000sq ft. We expect three new stores in FY12 with a 10% increase in area. Apart from a presence in 75 towns through Tanishq, TIL also services semi-urban and rural areas through its Gold Plus chain of 29 stores. This product range is targeted at value-conscious consumers buying traditional jewellery. The market is estimated to be in the region of Rs 300bn and is largely fragmented, with under-karating still widely prevalent. The company hopes to leverage on the Tata brand name to inspire customer trust in the quality and purity of its products. However, since the segment is highly sensitive to gold prices, the management has chosen not to focus unduly on the same until clarity emerges on prices. Apart from Tanishq and Gold Plus, TIL also has two Zoya stores, which are high-end jewellery outlets targeted at a niche customer profile though it has no plans to expand the same at present. TIL sells a mix of studded jewellery, plain gold jewellery and gold coins. The contribution from diamond studded jewellery stands at 30% of the segments sales, Gold coins constitute ~1012% of the jewellery segment sales. www.fullertonsecurities.co.in
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Titan is the largest jewellery retailer in India with 117 Tanishq boutiques, 29 Gold Plus stores and 2 Zoya stores

Tanishq is one of the strongest jewellery brands in the market with a 40% share in the branded segment

April 21, 2011 BUSINESS PROFILE

Eyewear: - Strong growth opportunity TIL ventured into the prescription eyewear business in 2007 and emerged as the largest optical retail chain in India (122 as of December 2010). 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). Largest optical retail chain in India (122 as of December 2010)

Eyewear market in India in mn (population)

Number of Stores

Titan Eyeware Stores

140 120 100 80 60 40 20 0 FY07 FY08 FY09 FY10 FY11

84

267

Users

Untapped Market

Companys eyewear strategy:The companys eyewear strategy is to concentrate on high margin areas: design, marketing, lens manufacturing, retailing and servicing the customers. Whereas Lens and frame distribution, frame manufacturing and finishing and assembly have been outsourced. Companys eyewear strategy is to concentrate on high margin areas

OUTSOURCE
Design & Marketing Frames & Lens Mfg Wholesale Distribution Lens finishing & Assembly Reatail , Services

Inhouse Process (High margin Areas):- Design, marketing, lens manufacturing, retailing and servicing the customers. Outsources Process :- Lens and frame distribution, frame manufacturing and finishing and assembly

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April 21, 2011 BUSINESS PROFILE

Precision Engineering: - Unlikely to be a focus area TIL has a presence in the B2B segment through its precision engineering business where it has forged strong client relationships with international customers in the automotive, aerospace and medical industries. The company currently focuses on precision components, dashboard instruments and subsystems. TIL has benefitted from Indias growth as a manufacturing base; the sluggishness in export markets (US, Europe) is impeding growth in the segment. The business is also highly capital intensive and has been facing some over-capacity issues with weak order flows as well as a dearth of skilled engineers being the biggest hindrances. We do not expect the business to make any significant contribution to the companys profitability. Precision engineering unlikely to make significant contribution to profits

Risks & 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 current significant jump in gold prices can lead to a significant slowdown in jewellery demand in the domestic market and negatively impact our demand forecast. Current significant jump in gold prices can lead to a significant slowdown in jewellery demand in the domestic market

Increasing competition from international watch players 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.

Slower than expected recovery from Economic slowdown TILs products fall under the discretionary category, which has high correlation 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.

International players can affect the TILs business

Continued dominance of customers on unbranded jewellery The jewellery market in India is dominated by unorganized 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. Dominance by unbranded jewellery

Increase in Rent to affect in short term With robust expansion plans 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 companys expansion plans, leading to reduced profitability.

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April 21, 2011 BUSINESS PERFORMANCE

For Q3FY2011, TIL reported stellar performance, which was in line with street expectations. The company reported topline growth of 47% Y-o-Y to Rs 19.55bn, backed by good retail growth across all its brands, retail chains backed by festive season demand for the quarter ended December 2010. Revenue performance by the jewellery and watches segments grew by 50% yoy and 35% Y-o-Y, respectively. Despite 19% increase in gold price in Q3FY11 over the same period in last year, Tanishq has recorded high sales growth in both plain and studded jewellery. Tanishq had a successful queen of diamond campaign during the quarter. The new Eyewear business has grown its retail presence through Titan Eye+ stores to over 40 towns and introduced many innovative products- in frames, lenses and sunglasses. For Q3FY2011, TIL reported stellar performance; it reported top-line growth of 47% yoy to Rs 19.55bn

Quarterly Performance
25000 20000 14% 12% 10% 15000 10000 5000 0 8% 6% 4% 2% 0%

Revenue, Operating & PAT Margin

100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 FY08 FY09 FY10 FY11E FY12E FY13E 12% 10% 8% 6% 4% 2% 0%

Revenues (Rs mn)

Margins(%)

Net Revenue (Rs mn)

EBITDA Margins

Revenue (Rs Mn)

EBIDTA Margin

PAT Margin

Peer Group Comparison

Companies Titan Industries Gitanjali Gems
Rajesh Exports TTM Figure

Revenue EBIDTA (Rs. mn) Margin (%) 60,545 86,353

207,494.3

10% 7% 2%

PAT Margin (%) 7% 4% 1%

ROE (%) 55% 15% 22%

P/E (x) 45.2 7.2 10.0

P/B (x) 24.9 1.1 2.2

CMP (Rs.) 4055 271

99.7

FV (Rs.) 10 10
1.0

TIL is a pioneer in the specialty retail market in India with leadership position in watches, jewellery and eyewear retail segments. TIL has higher EBITDA margin than its peers driven by strong revenue growth and controlled cost cutting measures undertaken by the firm. Further, well diversified business segments of Titan Industries have helped the firm to achieve 43% CAGR in its top line. Strong growth in top line coupled with controlled cost of manufacturing have led the firm to maintain phenomenal ROE of 55% as against 15% of Gitanjali Gems and 22% of Rajesh Exports. Further, considering managements aggressive expansion plans to open up another 250 stores in the coming 2 to 3 years, we believe that the company will continue to grow in the years to come. www.fullertonsecurities.co.in
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TIL has higher EBITDA margin than its peers driven by strong revenue growth and controlled cost cutting measures undertaken by the firm

April 21, 2011 VALUATIONS

TIL, a market leader in branded jewellery watches and eyewear is well-placed to benefit from rising aspiration values led by Indias booming economy. We forecast healthy 26% revenue CAGR over FY10-13 driven by store expansion and samestore sales growth. Rising share of studded jewellery, coupled with rapid growth in its high-margin premium watches, will drive margin expansion. The stock trades at 44.5x FY11E EPS of Rs 91 and 33.1x FY12E EPS of Rs 123. Based on FY13E consolidated numbers and assigning a PE multiple of 32, the fair value per share for the company works out to Rs 4,512. Based on FY13E consolidated numbers and assigning a PE multiple of 32, the fair value per share for the company works out to Rs 4,512

Financial Analysis and Projections

Particulars (Rs Mn)
Net Revenue Other Income Total Income Operating Expenditure Depreciation EBIT EBIT Margin (%) Interest Profit Before Tax Less: Tax PAT PAT Margin (%) ROE (%) EPS (Rs) BVPS (Rs)

FY09A
39,110 273 39,383 36,291 424 2,669 7% 288 2,381 741 1,639 4% 29% 37 126

FY10A
47,791 170 47,962 43,875 607 3,480 7% 254 3,226 713 2,513 5% 34% 57 165

FY11E
63,161 413 63,574 57,112 332 6,131 10% 92 6,039 1,993 4,046 6% 37% 91 245

FY12E
78,272 446 78,718 70,103 381 8,234 11% 117 8,117 2,679 5,438 7% 34% 123 357

FY13E
94,757 499 95,257 85,382 402 9,472 10% 149 9,323 3,077 6,247 7% 29% 141 486

Valuation Ratios (x)

P/E P/B

FY11E
44.5 16.6

FY12E
33.1 11.4

FY13E
28.8 8.3

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April 21, 2011

Board of Directors
Director Name Current Position Description

Mr. Debendranath Chairman Sarangi

Shri. Mr. Debendranath Sarangi, IAS, Additional Chief Secretary, Government of Tamilnadu and Chairman, TIDCO has been appointed as Chairman of the Board of Titan Industries Limited with effect from December 06, 2010.

Mr. Noel Naval Tata

Mr. Noel Naval Tata is Non-Independent Non-Executive Director of Titan Industries Ltd. He has wide knowledge and Non-Independent Nonexperience in sales and marketing and possesses in retailing business. He holds B.A. (Economics) from University of Sussex Executive Director and IEP, INSEAD, France.

Mr. V. Parthasarathy

Mr. V. Parthasarathy is Non-lndependent Non-Executive Director - Representative of TIDCO for Titan Industries Ltd., since Non-lndependent NonOctober 20, 2008. Mr. V. Parthasarathy is the Senior General Manager - Finance of Tamilnadu Industrial Development Executive Director Corporation Ltd., the co-promoter of the Company.

Mr. Rajeev Ranjan

Non-Executive Chairman

Mr. Rajeev Ranjan, IAS, Principal Secretary, Industries Department, Government of Tamilnadu is Non-Executive Director of Titan Industries Ltd. He served as Non-Executive Chairman of the Board of the Company till December 06, 2010.

Mr. Ishaat Hussain

Non-Independent Non- Mr. Ishaat Hussain is Non-Independent Non-Executive Director - Representative of Tata Group for Titan Industries Ltd. He is Executive Director a Chartered Accountant and is the financial expert. He has varied experience in Finance, Strategy & General Management.

Mr. Tirumalai Kumar Balaji

Non-Independent Non- Mr. Tirumalai Kumar Balaji is Non-Executive Independent Director of Titan Industries Limited and is a Industrialist with Executive Director business experience.

Dr. C. G. Krishnadas Nair

Non-Independent Non- Dr. C. G. Krishnadas Nair is Non-Executive Independent Director of Titan Industries Ltd. He has experience covering Executive Director academia, R&D and industry Retired as Chairman & CEO of Hindustan Aeronautical Limited

Ms. Vinita Bali

Ms. Vinita Bali is Non-Executive Independent Director of Titan Industries Ltd. She is presently Chief Executive Officer of Britannia Industries Ltd. She received her Bachelors degree in Economics from Delhi University and MBA at the Jamnalal Non-Independent Non- Bajaj Institute of Management Studies. She pursued postgraduate studies in Business and Economics at Michigan State Executive Director University. Ms. Vinita Bali is a qualified manager with national and international experience and had held several positions in Cadbury India and Coca-Cola. She was responsible for worldwide strategy for Coke and was one of the key players in helping the soft drink giant double its growth rate.

Mr. R. Poornalingam

Mr. R. Poornalingam is Non-Executive Independent Director of Titan Industries Ltd., since March 30, 2009. Mr. R. Non-Independent NonPoornalingam is a retired IAS officer and has served in various capacities in State and Central Government. He holds IAS, Executive Director MA (Economics), B.E, (Electrical) and B.L.

Mrs. Hema Ravichandar

Mrs. Hema Ravichandar is Non-Executive Independent Director of the Titan Industries Ltd., since March 30, 2009. Mrs. Non-Independent Non- Hema Ravichandar is a practicing in the field of Human Resource Development and has served as Senior Vice President & Executive Director Group Head - Human Resources Development of Infosys Technologies Ltd., till July 2005. He is holds B.A. Economics, Post Graduate Diploma in Management, IIM (A).

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