Titan: Aggressive expansion plans to boost volumes :thumb:
Slowing jewellery demand due to high gold prices remain a concern for jewellery retailers. Despite the wedding season, demand hasn't picked up as anticipated and it is expected to stay this way for the remaining part of the year.
That is perhaps why Titan India's stock has corrected by 15% in less than a month. But will Titan be impacted by this rise in gold prices and muted demand? Titan operates in the jewellery segment through its retail brand Tanishq which contributes almost three-fourths to its total net sales. Despite an unfavourable macro environment, it has aggressive expansion plans. It has planned to add 30%, or 10,000 square feet, to its total retail space in the current fiscal.
And this will not require much capital expenditure as the company mainly operates on an asset-light franchisee model. Its strong brand equity allows this. The company has already finished adding three-fourths of the target space addition in the first half of this fiscal before the start of the wedding season.
Though same-store sales may show a drop in the volumes, this space addition will help boost overall volume. In the September quarter 2011, sales volume grew 3% despite a decline in same store sales 3%. Titan has a 5% market share in the jewellery segment, which continues to grow at a rapid pace.
Strong brands and consistent innovation allow this even as the overall jewellery market shrinks. In the September quarter, the industry year-on-year volume growth declined 25% but Titan's jewellery sales increased 3%. The growth in sales volume aided by the rise in gold prices boosts the company's profit margins.
Though overall year-on-year volume growth in the previous quarter was only 3%, revenues from the jewellery business grew 44%. At a price of Rs 191, the company's stock is trading at a price-toearnings multiple of 20.
Though the jewellery demand may remain subdued in the medium term, the recent correction in Titan India's stock price has factored these concerns, leaving room for some upside.
Slowing jewellery demand due to high gold prices remain a concern for jewellery retailers. Despite the wedding season, demand hasn't picked up as anticipated and it is expected to stay this way for the remaining part of the year.
That is perhaps why Titan India's stock has corrected by 15% in less than a month. But will Titan be impacted by this rise in gold prices and muted demand? Titan operates in the jewellery segment through its retail brand Tanishq which contributes almost three-fourths to its total net sales. Despite an unfavourable macro environment, it has aggressive expansion plans. It has planned to add 30%, or 10,000 square feet, to its total retail space in the current fiscal.
And this will not require much capital expenditure as the company mainly operates on an asset-light franchisee model. Its strong brand equity allows this. The company has already finished adding three-fourths of the target space addition in the first half of this fiscal before the start of the wedding season.
Though same-store sales may show a drop in the volumes, this space addition will help boost overall volume. In the September quarter 2011, sales volume grew 3% despite a decline in same store sales 3%. Titan has a 5% market share in the jewellery segment, which continues to grow at a rapid pace.
Strong brands and consistent innovation allow this even as the overall jewellery market shrinks. In the September quarter, the industry year-on-year volume growth declined 25% but Titan's jewellery sales increased 3%. The growth in sales volume aided by the rise in gold prices boosts the company's profit margins.
Though overall year-on-year volume growth in the previous quarter was only 3%, revenues from the jewellery business grew 44%. At a price of Rs 191, the company's stock is trading at a price-toearnings multiple of 20.
Though the jewellery demand may remain subdued in the medium term, the recent correction in Titan India's stock price has factored these concerns, leaving room for some upside.
