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Investors can buy the stock of Titan Industries (Titan) with a two- to three-year perspective. At the current market price, the stock trades at about 27 times its likely FY09 per-share earnings, well below its historical range. The valuation appears reasonable for a stock that has a strong consumption theme.

Rapid retail expansion, a widening portfolio of branded luxury products and a large, under-penetrated branded jewellery market remain robust triggers of growth over the next couple of years. The stock is a preferred pick in the retailing sector, given its strong brand presence, superior cashflow and relatively attractive valuations.

Concerns that rising gold prices would reduce demand for jewellery have weighed on the stock in recent months. However, the concerns may have been overdone. The company, with its brands Titan and Tanishq deeply entrenched in their respective markets, appears well placed to command pricing power. This is borne out by Titan’s strong performance in the fourth quarter of 2007-08; sales of its jewellery business increased 56 per cent, even as gold prices shot up to record levels.

High gold prices do not appear to have deterred demand at the premium end of the segment and Titan appears to have partly passed on the gold price increase. Rising demand for diamond and studded jewellery is also likely to compensate for any decline in interest in pure gold jewellery.

Titan has been steadily improving its product mix both in the watches and jewellery segments. For instance, in watches, it has introduced a range of premium brands such as Nebula and Xylys and also retails international brands such as Tommy Hilfiger and Hugo Boss. This premium mix should help sustain its margins at the current 8 per cent levels.

Titan’s latest venture in the prescription eyewear market, Titan Eye+, also appears lucrative, as that segment is a fast-growing, under-penetrated market, much like the branded jewellery segment. The company has opened 10 Eye+ stores till date. Titan intends to grow this segment, currently an insignificant contributor to revenues, into a Rs 450-crore business in the next five years. The company’s track record in building brands from scratch inspires confidence in its ability to meet that target. As a leading branded retailer, Titan could also emerge as a licence partner of choice for international brands that are looking at wetting their feet in the Indian market.

Shanthi Venkataraman

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