Titan Company plans to raise Rs 900 crore through commercial paper

Titan Company, a Tata group unit, plans to raise about Rs 900 crore through commercial paper, a short-term money market instrument.

It has comfortable liquidity with healthy cash accruals of Rs 1,000 crore and financing through customer advances (deposits). Also, the Tata group company has healthy cash and liquid investment reserves of over Rs 900 crore as on March 31. This excludes restricted cash and inter-corporate deposit investments. 

Rating agency ICRA has assigned an “A1+” to commercial paper.  Its operations are working capital intensive. However, these are largely funded by customer advances and credit through gold metal loans with negligible cash credit/overdraft utilisation by the company. Also, the gold inventory hedging practices followed by Titan protect its earnings against volatility in gold prices. 

Referring to its market strengths in various segments, ICRA said the company had leadership position in the organised jewellery, watches, and eyewear segments.

Titan's jewellery segment has witnessed healthy revenue  growth  and  margin  expansion  in  2017-18  and  2018-19,  aided by improving market share as well as additions to the store network. The watches segment has also reported improvement in profit margins during the past two years. 

Titan has a robust financial profile with strong cash accruals, moderate capital expenditure requirements, and comfortable leverage metrics.

The ratings, however, continue to be constrained by the regulatory risks and the competition in the domestic jewellery retail space with all major players expanding across markets. Regulatory actions in the jewellery segment have impacted Titan in the past, both on the demand and supply side.

 On demand front, impact has been through enhanced disclosure norms for customers, limits on cash transactions. And on the supply side, it is through curbs on imports, restrictions on gold on lease financing.

There is also growing competitive pressures in segments of operations. Alternatives for time-keeping devices such as mobile phones apart from discounts by competitors and online retailers may potentially constrain revenue growth and margins in the watches segment.