The Hindu Business Line : Titan Industries: Invest

Steep discount to market price for the equity component, attractive interest rate for the non-convertible security and promising business outlook make it a rights offer to watch.

Expanding retail presence
Gaining strength in jewellery
Widening range in higherend watches
Making a mark in precision products
Scaling up manufacturing facility

Aamir Khan as brand ambassador

Enhancing profile with a series of high-end products, an expanding retail network

Shareholders can participate in the rights issue of partly convertible debentures of Titan Industries priced at Rs 600 per share. They will be entitled to one share of Rs 350 each for every 20 shares held and a debenture carrying an interest rate of 6.75 per cent per annum, redeemable after five years. At a ratio of one to 20, subscribing to the rights issue may not give a great averaging benefit.

However, an additional investment of Rs 600 does give a good return, considering the current market price of Rs 750 for the stock and a reasonably attractive interest rate for a convertible bond. Moreover, Titan's growth plans will not lead to any significant expansion in equity.

Retail play

At Rs 750, the Titan stock now enjoys a premium valuation of 65 times its annualised FY-06 per share earnings. Being perceived as a retail play, the stock commands valuations equivalent to a few of the listed retailers such as Shoppers' Stop and Pantaloon Retail.

The timely implementation of the project will lead to a substantial expansion in Titan's retail presence and allow it to capitalise on the growth prospects for the jewellery and precision engineering segments.

We believe the retail story is still at a nascent stage and holds substantial potential for growth. Titan plans to expand its retail stores big time in the upcoming malls in the next couple of years.

Quite a few stores are coming up in the National Capital Region (NCR) region, where the capacity to spend is high. Titan is also opening up stores in tier-two cities such as Jaipur, Ahmedabad and Mysore.

The expansion will predominantly be for watches, the bottomline driver. The company plans to open 86 company-managed stores, of which 82 will be for watches.

Titan has been concentrating on the middle range segment for watches for the last couple of years and has been successful. New ranges such as Fastrack or the Steel collection of watches at higher price points have improved the realisation level per watch. Also, the introduction of Tommy Hilfiger range has given it a share of the high-end segment too. A presence across price points and a good brand recall could give it an advantage as the retail story unfolds.

Bright prospects

The jewellery division has been on a consistent growth path and the bottomline too has been growing at a healthy rate. Having established a brand name, Titan is in a much better position to take advantage of the shift in trend towards branded jewellery. A number of players are now entering the retail jewellery segment. However, Titan's first-mover advantage and a strong brand recall may help it get a better share of the growing market.

The precision engineering segment caters to the automobile and aerospace segment, which holds immense potential, as export opportunities are promising. Titan's plans to upgrade from a pure component manufacturer to making sub assemblies could give it better margins.

Offer details: Titan Industries plans to issue 21.13 lakh partly convertible debentures of Rs 600 each on a rights basis in the ratio of one PCD for every 20 equity shares held. The PCD will be convertible into one equity share of Rs 350 and one secured redeemable debenture of Rs 250 each, redeemable after five years. The redeemable debenture will carry an interest of 6.75 per cent per annum.

Titan plans to use the proceeds of the offer to fund the expansion of its retail outlets, refurbish its watch-making facility and ramp up manufacturing capacities for its precision engineering components and jewellery. JM Morgan Stanley is the lead manager to the offer. The offer closes on April 24, 2006.

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