Titan: Inviting eyeballs

The company is entering the Rs 1500-1600 cr eyewear segment and growing at 15-20 per cent a year.

Having established itself in both the branded jewellery and watches segments, Titan is now entering the largely unorganised prescription eyewear segment, a market estimated at Rs 1500-1600 crore and growing at 15-20 per cent a year.

Jewellery today accounts for more than a fourth of the spending on luxury items and the opportunity for branded players is large because organised jewellery retailing accounts for just 3 per cent of the total sales and is growing at 20-25 per cent annually.

However, the branded jewellery space is getting competitive with the number of local players entering the market and several foreign players mulling an entry into India.

The Rs 2091-crore Titan's strategy is to grow the jewellery business so that it contributes a larger share of overall revenues at about 65 per cent in the next couple of years from around 61 per cent currently.

Moreover, it will focus on the mass segments for both jewellery "" through its Gold Plus stores "" and watches where it has lowered the price point to sub Rs 300.

Since the jewellery business fetches far lower operating margins of just 7 to 8 per cent compared to watches which commands margins of 18 to 20 per cent, the overall margins would be dampened.

Also since Titan sells through its own retail outlets, (in addition to multi-brand outlets) costs on real estate and people will remain high. The firm plans to open 90 'World of Titan' showrooms in the next two years, most of which will be located in malls.

While the firm posted a strong 45 per cent growth in revenues, operating margins fell 200 basis points to 9.6 per cent and the growth in the net profit was just 6 per cent at Rs 121.8 crore.

Revenues should grow at around 25-30 per cent in the next few years, operating margins are unlikely to expand significantly given the changing product mix and earnings should grow at around 30 per cent.

At the current price of Rs 1350, the stock trades at 37 times estimated FY08 earnings and 29 times FY09 earnings and while the stock may not be cheap, it is likely to continue to attract high multiples given its ability to build and nurture brands.

Maruti Udyog: Fast track

Maruti Udyog reported an impressive 23.7 per cent y-o-y growth in monthly sales to 59,917 units for June 2007, helped by stellar growth in the A2 segment, coupled with strong response for its recently launched SX4 model in the A3 segment.

In the A2 segment (comprising of Swift and Alto) sales grew 38.3 per cent to 37,646 units in the previous month and analysts also point out that discounts at the dealer level helped boost sales in this segment.

Meanwhile, the launch of SX4 in May 2007 helped A3 segment sales surge a whopping 46.4 per cent y-o-y to 3,923 units in June 2007.

The stock gained 3.8 per cent on Monday. An improved sales performance in June 2007 helped Maruti's total sales rise 17.1 per cent y-o-y to 169,669 units in the June 2007 quarter, although it was lower than the 20.1 per cent growth in vehicle sales reported in FY07.

Growth in June 2008 quarter lagged FY07, because in May 2007, sales grew by 11.2 per cent y-o-y, while in April it was 16.8 per cent y-o-y. Going forward, the company's supply for models like SX4 and Swift is expected to improve, given the week-long planned maintenance of its plants in June 2007.

And as these models are higher margin products, it should help the company be better positioned to absorbed higher input costs, like metals. At Rs 771, the stock trades at about 16-17 times estimated FY08 earnings.

With contribution from from Shobhana Subramanian and Amriteshwar Mathur