Initiate with a Buy, PO of Rs1,850 – 30% potential upside Titan is a high quality, high growth domestic consumption story. Its offers strong brand equity, wide distribution & high quality mgmt coupled with strong structural growth drivers.
Titan sells watches through a mix of exclusive brand outlets (EBOs), multi brand outlets and dealers.On a pan India basis Tanishq is today the largest branded jeweler but on an individual city basis it is invariably much smaller than the city market leader. Management’s focus now is to set up larger Tanishq stores in the existing cities and offer wider variety to drive higher footfalls. Titan has recently launched a new value format, Gold Plus in second tier cities. Product offerings will be limited to pure gold jewelry to drive volumes from a consumer base. Prescription eye wear – is Titan’s latest venture, currently in pilot stage.
Titan’s EPS is expected to grow 44% in FY08E, 43% in FY09E and 53% in FY10E. The acceleration in FY10E assumes turnaround in precision engineering and take-off in eyewear. Assuming this does not happen, we estimate FY10E EPS will nonetheless grow strongly by 40%. Titan is expected to report an EPS of Rs 36.34 and Rs 51.88 for FY08 and 09 respectively.On the basis of DCF valuation, Merill has set a target price of Rs 1,850 on the stock.