Rating Rationale
July 31, 2018 | Mumbai
Titan Company Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.1350 Crore
Long Term Rating CRISIL AA+/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.500 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank loan facilities and debt programme of Titan Company Limited (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

* 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 66.59% stake in Carat Lane Trading Pvt Ltd (CaratLane) over a period of 5 years from the date of acquisition
* CRISIL has also considered gold on loan as short term debt for fiscals 2017 and 2018 for its analysis.

Key Rating Drivers & Detailed Description
Strengths
* Leadership position in its major business segments: jewellery and watches:
Titan has around 65% market share in the domestic organised wristwatch segment and around 40% market share in the organised jewellery retailing 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 industry-leading operating margins of 10.2% in fiscal 2018. 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 robust operating efficiency will enable it to maintain its strong operating profitability over the medium term.
 
* Strong financial risk profile
Titan's financial risk profile is marked by healthy gearing and ample liquidity. As on March 31, 2018, the company had gold on loan liabilities of Rs 1612 crore. Also, Titan's expansions are prudently managed through a mix of company-owned, company-managed, and franchisee stores. Hence, large-scale retail space additions do not result in heavy capital expenditure (capex). CRISIL believes that Titan's capex will remain between Rs.200 crores and Rs.400 crores per annum over the medium term; this will be largely funded through internal accruals of over Rs.900 crores per annum. Apart from this, Titan had ample liquidity in form of cash and marketable securities of around Rs.620 crores as on March 31, 2018. Company has extended intercorporate deposits of Rs 230 crores.  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 had seen heightened regulatory action in the past. 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 beyond Rs.2 lakhs. 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 bounced back over fiscal 2017 and fiscal 2018 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 unorganized players in the jewellery division
Titan is exposed to intense competition in the jewellery retailing segment. Jewellery retailing in India is largely dominated by unorganised players which have a stronghold in their regions. Titan has an overall market share is 5 to 6% in the jewellery segment. As the company expands, it will face severe competition from these 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

CRISIL believes that Titan will continue to improve its strong market position in the wristwatches and jewellery segments driven by stronger than expected revenue growth and expansion in operating margins, and will sustain its strong financial risk profile with low gearing and strong debt protection metrics, over the medium term.
 
Upside Scenario
* Titan reports more-than-expected revenue growth across its business segments, while improving revenue and cash flow diversity
* Continued healthy financial risk profile, such that the ratio of total outside liabilities to total networth remains much below 1 time on a sustained basis
 
Downside Scenario
* Significant impact due to regulatory changes, or due to supply related issues impacting Titan leading to deterioration in business risk profile
* Weakening of capital structure, either due to aggressive debt funded expansion plans or regulatory changes leading to gearing exceeding beyond 1 time on a sustained basis

About the Company

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, Favre Leuba and Nebula for watches; and Tanishq, Mia, Carat Lane and Zoya for jewellery. Its other business activities (around 5% of the turnover) include precision engineering and prescription eye wear. The company has also launched a new 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).

Key Financial Indicators*
As on / for the period ended March 31 2018 2017
Revenue Rs crore 16,156 13,382
Profit after tax Rs crore 1102 697
PAT margin % 6.8 5.2
Adjusted Debt/Adjusted Networth Times NA NA
Interest coverage Times NA NA
*Company Reported

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)
ISIN Name of instrument Date of
allotment		 Coupon
rate (%)		 Maturity
date		 Issue size
(Rs. crore.)		 Rating assigned
with outlook
NA Proposed Cash Credit* NA NA NA 900 CRISIL AA+/Stable
NA Proposed Letter of Credit** NA NA NA 450 CRISIL A1+
NA Commercial Paper NA NA 7-365 days 500 CRISIL A1+
*One way interchangeability to Import letter of credit, foreign letters of credit and Standby letters of credit to the extent of sanctioned limit
**Interchangeable with standby letter of credit and bank guarantees
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  500.00  CRISIL A1+      06-07-17  CRISIL A1+  27-07-16  CRISIL A1+  28-01-15  CRISIL A1+  CRISIL A1+ 
                22-03-16  CRISIL A1+       
Non Convertible Debentures  LT    --    --    --  22-03-16  Withdrawal  28-01-15  CRISIL AA+/Stable  CRISIL AA+/Stable 
Fund-based Bank Facilities  LT/ST  900.00  CRISIL AA+/Stable      06-07-17  CRISIL AA+/Stable  27-07-16  CRISIL AA+/Stable  28-01-15  CRISIL AA+/Stable  CRISIL AA+/Stable 
                22-03-16  CRISIL AA+/Stable       
Non Fund-based Bank Facilities  LT/ST  450.00  CRISIL A1+      06-07-17  CRISIL A1+  27-07-16  CRISIL A1+  28-01-15  CRISIL A1+  CRISIL A1+ 
                22-03-16  CRISIL A1+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Cash Credit Limit* 900 CRISIL AA+/Stable Proposed Cash Credit Limit* 900 CRISIL AA+/Stable
Proposed Letter of Credit** 450 CRISIL A1+ Proposed Letter of Credit** 450 CRISIL A1+
Total 1350 -- Total 1350 --
*One way interchangeability to Import letter of credit, foreign letters of credit and Standby letters of credit to the extent of sanctioned limit
**Interchangeable with standby letter of credit and bank guarantees
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Retailing Industry
CRISILs Criteria for rating short term debt

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