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8/7/2019 Titan Industries Limited - Finac
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CONTENTS
1.0 STRATEGY ANALYSIS ................................................................................32.0 ACCOUNTING ANALYSIS ............................................................................43.0 FINANCIAL ANALYSIS .................................................................................4
3.1 Balance Sheet Analysis ........................................................................53.2 Profit and Loss Statement Analysis .....................................................53.3 Profitability Ratios ...............................................................................63.4 Liquidity Ratios ...................................................................................73.5 Solvency Ratios ....................................................................................83.6 Capital Market Ratios ..........................................................................83.7 Cash Ratios ..........................................................................................9
4.0 CONCLUSIONS ..............................................................................................95.0 ANNEXURES .................................................................................................12
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Titan Industries is Indias leading producer and retailer of watches and jewellery, and is
credited with changing the face of the Indian watch as well as the jewellery industry. The
watch division with a domestic market share of over 70% of the organized market is clearly
the market leader.
Titan Industries Ltd. operates in Leisure & Personal Goods Retail segment and its area of
operations includes Asia Pacific, Middle East and the UK. The company has three product
divisions: watches, jewellery and eyewear. Titan Industries key strategy is to explore new
consumer segments, introduce innovative new products, and rapidly increase its retail
network to drive sales growth. The Company strongly focuses on building a highly
differentiated brand positioning in the marketplace. The business is also rationalizing its cost
structure and leveraging lower rentals prevalent in the market today. The companys
acquisition of 3 subsidiary companies under its scheme of amalgamation (Samrat Holdings
Ltd, Questar Investments Ltd and Titan Holdings Ltd) has been approved by jurisdictional
High courts with effect from March 30, 2009.
All the aforesaid businesses are consumer led businesses and the retail network expansion is
carried out through franchisees at the front end. This is an efficient way to expand rather than
having Company owned/managed showrooms. The relationships have to be actively managed
to pre-empt shifting of loyalties of these franchisees to other product category brands/brands
within these categories. During 2009, the Company raised a total of Rs. 249.20 crores from
borrowings. As a result, the average cost of borrowings for the year was 10.97% as against
9.24% in the previous year and this has increased the liabilities.
Watch segment sales grew by 3.6% to Rs. 908.49 crores, while jewellery sales went up by
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Eyewear Division which is in the process of establishing a national network of world class
optical stores incurred a loss of Rs. 32.69 crores, in its first full year of operations. Injewellery business, gold prices continue to be high and volatile and therefore will affect
consumer demand. The company is looking at effective cost management and better working
capital management to stave off these risks.
The following have been our observations regarding the accounting policies of the company:
During the year 2008-09, the Company revised the estimated useful life of Furniture& Fixtures from 15 years to 5 years which resulted in an additional depreciation
charge of Rs. 7.90 crores. This however does not seems to affect the P&L statement
for the financial year 08-09 much as the overall income from the exceptional items in
the statement has decreased for this period.
The company changed the Inventory valuation method of gold from weighted averageto FIFO to facilitate appropriate presentation of the financial statements with effect
from April 1, 2009. However this would not affect the analysis that we would be
doing as the last considered financial statement for this study is of the year ending on
31st march 2009.
Apart from the above two changes there does not seems to be a major change in the
accounting policy or unusual accounting treatment evident from the reports.
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The increase in the operating profit and it being a high percentage of the Profit after Tax
shows a high quality of earning. The same point is consolidated by the high Cash RealizationRatio.
We hereby use the horizontal and vertical analysis methods to derive meaning from the
balance sheet and the profit and loss account and then use the ratio analysis methods to gain
greater insight into the company operations.
has been carried by observing common sized balance sheet and
horizontal analysis. The following are the key interpretations:
The company has paid back a major portion of its borrowings in 2008-09, which isevident from common sized balance sheet as total debts have gone down. The same is
substantiated by reduced growth in reserves and surplus in the same fiscal year
(horizontal analysis).
The company is moving on to the franchisee model of operations and the same isindicated by the continuously decreasing increase in fixed assets in common sized
balance sheet and horizontal analysis.
Investments had risen in 2007-08 due to amalgamation of 3 subsidiaries andinvestment rose from Rs 27.02 crores in 2006-07 to Rs 47.39 crores in 2008-09 (the
same is indicated in common sized balance sheet)
The growth in companys inventory levels has followed a decreasing trend (horizontalanalysis). The fact can be attributed to stabilization of jewellery business. Moreover,
global recessionary forces led to a demand slump in 2008-09 and this can also be the
reason of company maintaining a not so high inventory level in that period.
3.2 Analyzing the profit and loss statement of the company, its sales have increased over the
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In 2007-08, company had an unprecedented other income of Rs 84.69 crores whichwas due to writing back of provisions Rs 79 cr in the fiscal year (this is indicated bycapitaline database, but companys annual report does not make a mention of it).
Talking about financial ratios, we group them under profitability, liquidity, solvency, capital
market and cash ratios and carry out the analysis on the basis of the group.
The fixed asset turnover ratio(FATOR) has shown a
constantly increasing trend,
emphasizing the fact that the
company has been able to
better utilize its assets. The
other major point that this
suggests is that the company
has been moving to a
franchisee model where the
fixed assets have not really
increased, but the sales have
continued to grow. The totalasset turnover (ATOR) ratio
has also increased, not as
drastically as the FATOR, but
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The Debt to equity ratio hasbeen decreasing constantly and
this is consistent with the
company becoming more
mature. The same holds true
for the liability to equity ratio.
The interest cover ratio talksabout the ability of the
company to pay off its interest
to the creditors. This value for
titan industries has been
increasing over the past fouryears, showing the increasing
strength of the company to
clear off its short term
liabilities to the creditors.
Price to Earnings Ratio: As isindicated by the Price to
Earnings ratios there has been
an increase in 2006-07 over
2005-06, then a decrease in
2007-08 and again an
increase in 2008-09. The dip
i 2007 08
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Dividend Yield: The dividend given by the company also follows a similar trend asabove which indicates less dividend in 2007-08 as compared to other years.
If we look at the difference between net profit and the cash flow from operations, thecurrent year has seen the quality of earnings improve significantly.
A Cash realization ratio of greater than 1 is another indicator of the quality ofearnings. The income has not relied on non-cash sources this shows conservative
valuation policy.
The operating cash flowcover for interest
expense is consistently
greater than 3. This
indicates that the
company is unlikely to
default on its interest
payments even under
relatively adverse
operating conditions.
This is a positive
indication for the
companys creditors.
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second hand market and gives them the competitive advantage. Titan Industries stock has
been resilient to the recessionary time due to sustained growth in sales and profit and strong
focus on domestic sector.
Since jewellery accounts for the lions share of the revenues, about 68% one major concern is
the fluctuation in the prices of gold and high procurement costs which in turn also affect
consumer demand. The biggest challenge in the business would be to maintain the high
service standards expected by consumers in an organized service industry. Therefore it has to
invest further in developing the best talent through training and other developmental
initiatives. The company has high cost of the captive manufacturing unit (Hosur) due to high
wages. Measures like lean manufacturing and outsourcing become critical in watch
manufacturing. The company also identifies the potential threat from the mobile phones and
has started promoting watches as a personal accessory.
Company's options in terms of price attractiveness to customers are very limited as they are
obtained from the international markets. This gives the local players an advantage in price
discounts.
Earnings Per Share (EPS) and P/E ratio: Together they measure the performanceof the company and its investments. A high P/E ratio indicates stock markets
confidence in a companys future growth. Current ratio of 38 indicates healthy
performance.
Debt to Equity Ratio: Over five years there has been a consistent decrease in theratio from 2.6 to 0.32 indicating that company has been able to finance its operations
internally and has been at bay from using excessive debt financing. However a low
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prices, fluctuation in demand along with the companys acquisition of three
subsidiaries, it seems a good prospect for long term investment.
This exercise was an extensive learning activity. Firstly, we computed and understood the
importance of managerial financial statements in analyzing companies. Secondly, we
developed an understanding of how to view the available financial information from
perspectives of different stakeholders. Investors, suppliers, clients and other differentstakeholders analyze a companys financial situation after looking at different set of ratios.
Thus, the set of ratios selected to analyze a company is very crucial. Thirdly, to project a
companys future prospects, it is imperative to look at past data and develop trends (also
taking into account market externalities). And lastly, we also developed an understanding of
where to look for financial data (i.e. stock exchanges websites, companies annual reports,analyst reports, industry profiles, projection reports etc). All in all, it was a tremendous
learning exercise.
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Balance Sheet from Capital Line
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Managerial Balance Sheet
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Common Sized Balance Sheet
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Horizontal Analysis of Balance Sheet
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PnL Statement of Capital Line
Year Latest 2009 2008 2007 2006 2005 2004
No. of Companies 11 3 6 6 6 6 6
INCOME :
Sales Turnover 4,279.44 4,078.83 3,378.43 2,447.40 1,712.11 1,332.15 1,121.74
Excise Duty 61.73 48.79 95.55 98.52 79.85 50 80.83
Net Sales 4,217.71 4,030.04 3,282.88 2,348.88 1,632.26 1,282.15 1,040.91
Other Income 50.13 36 100.19 54.36 101.43 27.5 28.28
Stock Adjustments 205.57 182.23 319.05 252.75 76.45 82.88 33.36
Total Income 4,473.41 4,248.27 3,702.12 2,655.99 1,810.14 1,392.53 1,102.55
EXPENDITURE :
Raw Materials 3,049.95 2,939.65 2,529.12 1,700.38 1,043.17 805.04 644.35
Power & Fuel Cost 22.57 18.14 20.44 17.46 15.7 15.12 13.98
Employee Cost 344.83 253.09 293.66 251.61 209.16 174.21 159.63
Other Manufacturing Expenses 99.89 84.95 66.88 61.62 44.16 35.72 27.53
Selling and Administration Expenses 535.61 505.89 380.48 320.68 235.41 208.26 145.05
Miscellaneous Expenses 161.78 128.68 210.87 227.57 120.6 128.45 117.08
Less: Pre-operative Expenses Capitalised 0.09 0.09 0.02 0.52 0.89 0.49 0.81
Total Expenditure 4,214.54 3,930.31 3,501.43 2,578.80 1,667.31 1,366.31 1,106.81
Operating Profit 258.87 317.96 200.69 77.19 142.83 26.22 -4.26
Interest 155.02 30.9 142.62 133.49 126.68 118.53 116.18
Gross Profit 103.85 287.06 58.07 -56.3 16.15 -92.31 -120.44
Depreciation 53.14 44.65 39.07 34.67 29.41 29.04 35.64
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Profit Before Tax 50.71 242.41 19 -90.97 -13.26 -121.35 -156.08
Tax 76.45 75.96 43.6 40.21 17.66 14.9 9.64
Deferred Tax -6.48 -6.54 7.26 -2.47 -5.65 -5.69 -6.14
Reported Net Profit -24.38 168.16 -36.52 -132.84 -29.08 -130.56 -159.58
Extraordinary Items -1.99 -1.96 -19.55 10.87 29.02 -29.08 -19.03
Adjusted Net Profit -22.39 170.12 -16.97 -143.71 -58.1 -101.48 -140.55
Adjst. below Net Profit -0.45 0 0 -0.2 0 0 127.39
P & L Balance brought forward -771.58 221.35 -865.51 -688.65 -632.63 -485.18 -442.36
Statutory Appropriations 0 0 0 0 0 0 0
Appropriations 168.87 166.48 63.61 43.82 26.94 16.89 10.63
P & L Balance carried down -965.28 223.03 -965.64 -865.51 -688.65 -632.63 -485.18
Dividend 46.02 44.39 36.24 23.61 14.2 9.34 4.96
Preference Dividend 0 0 0 0.39 2.72 2.81 3.32
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Managerial PnL Statement
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Common sized PnL Statement
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Horizontal Analysis of PnL
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Cash Flow Statement
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Horizontal Analysis of Cash Flow Statement
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Financial Ratios
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Debt to Equity Ratio