| Titan Company Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||||
| The common independent director on the boards of CRISIL and Titan Company Ltd did not participate in the rating committee meeting and the rating process for these instruments |
| Detailed Rationale |
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CRISIL has reaffirmed its ratings on the bank loan facilities and debt programme of Titan Company Ltd (Titan). The rating continues to reflect Titan's market leadership across its major business segments-organised jewellery and wristwatches-healthy operating efficiency, and strong financial risk profile. These strengths are partially offset by the company's exposure to regulatory risks in the jewellery division and exposure to competition from unorganised players, in the jewellery segment. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has consolidated Titan and its subsidiaries. Further, CRISIL has amortised the goodwill and intangibles arising from the acquisition of 62% stake in Carat Lane Trading Pvt Ltd (CaratLane) over a period of 5 years from the date of acquisition (Rs. 30.49crore in fiscal 2017 and Rs.60.98crore from fiscal 2018). |
| Key Rating Drivers & Detailed Description |
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Strengths * Leadership position in major business segments: jewellery and watches: Titan is the largest jewellery retailer in India and has around 65% market share in the domestic organised wristwatch segment. The company's market leadership in the jewellery and watches division is driven by its strong brands, association of trust with the Tata brand, and its pan-India distribution network. CRISIL believes that Titan will leverage its brands to expand and maintain its leadership position over the medium term. * Healthy operating efficiency Titan also has healthy operating efficiency reflected in its operating margins of 9.3% in fiscal 2017. The company's healthy operating efficiency stems from strong control over operations, outsourcing of jewellery-making to karigar parks, in-house design and expertise in precision engineering and watches, efficient working capital management, and prudent hedging policies. CRISIL believes that Titan's healthy operating efficiency will enable it to maintain its strong operating profitability over the medium term. Titan's focus on franchise model of stores also benefits it Return on Capital Employed (estimated at 29% for fiscal 2017), thereby benefitting its operating efficiency. * Strong financial risk profile Titan's financial risk profile is marked by healthy capital structure and ample liquidity as reflected in nil debt and Rs.1000 crore of liquid surplus as on March 31, 2017. Titan has increased its reliance on gold on loan scheme, after the scheme was re-introduced by the government. This has helped Titan reduce its inventory funding costs and also provide a hedge on the gold inventory. Also, Titan's expansions are prudently managed through a mix of company-owned, company-managed, and franchisee stores. Since over 80% of the stores are franchise-based, large-scale retail space additions does not result in heavy capital expenditure (capex). CRISIL believes that Titan's capex will remain between Rs.250-300 crore per annum over the medium term; this will be largely funded through internal accruals of Rs.600 crore to Rs.700 crore per annum. As a result, the capital structure is expected to remain healthy over the medium term. Given the internal funding of capex and ample liquidity, CRISIL believes that Titan will maintain its healthy financial risk profile over the medium term. Weakness * Exposure to regulatory risks in the jewellery division Titan remains exposed to regulatory risks in the jewellery division. This sector has seen heightened regulatory action over the past four years. For instance, during fiscal 2014, to curb the import of gold, the government introduced 80:20 rule, discontinued gold on lease scheme and modified the gold deposit scheme. Subsequently, in fiscal 2015, the gold on loan scheme was re-started and 80:20 rule was scrapped. Further, since January 2016, the government has mandated jewellers to collect PAN card for all purchases over Rs.2 lakh. The government has also introduced the sovereign gold bond scheme, to shift consumer preferences away from physical gold. These regulatory changes had moderated the company's operating performance in the past. However, the operating performance has recovered in fiscal 2017 due to increasing customer shift towards branded players like Titan post the announcement of demonetisation in November 2016. CRISIL believes that Titan will remain susceptible to changing regulatory norms. * Exposure to competition from unorganised players in the jewellery division Jewellery retailing in India is largely dominated by unorganised players, which have a stronghold in their regions. Although Titan is the largest jewellery retailer in India with a market share estimated at over 15% in the organised jewellery retailing segment, its overall share is less than 5%. As the company expands, it will face severe competition from local players. However, CRISIL believes that increasing consumer awareness about branded jewellery and purity of gold, and the trust associated with the Titan brand will enable the company to penetrate new markets over the medium term. |
| Outlook: Stable |
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CRISIL believes Titan will maintain its strong market position in the wristwatches and jewellery segments, and its strong financial risk profile with low gearing and strong debt protection metrics, over the medium term. |
| About the Company |
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Titan was incorporated in 1984 as a joint venture between the Tata group and Tamil Nadu Industrial Development Corporation Ltd (TIDCO). Titan is the market leader in both its core segments, watches, and branded jewellery. Titan's brand portfolio includes Titan, Sonata, Fastrack, Raga, Xylys and Nebula for watches; and Tanishq, Gold Plus, and Zoya for jewellery. Its other business activities (around 4% of the turnover) include precision engineering and prescription eye wear. The company has also launched a brand, Skinn in the perfume segment. The Tata group and TIDCO hold about 25% and 28%, respectively, of Titan's equity shares, with financial institutions, banks, corporate entities, and the public holding the rest. Titan's manufacturing and assembly plants are in Hosur (Tamil Nadu), and in Dehradun, Roorkee, and Pantnagar (all in Uttarakhand). |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||
**Interchangeable with standby letter of credit and bank guarantees |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
**Interchangeable with standby letter of credit and bank guarantees | ||||||||||||||||||||||||||||||
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