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Jamnalal Bajaj Institute of Management Studies MMS 2019

Titan industries

Name – Prajyot Chakrawarti

Roll no 12

Background

Titan Industries was established in 1984 as a joint venture between the Tata Group and
Tamil Nadu Industrial Development Corporation (TIDCO). The company set up its
corporate office in Bangalore (Karnataka) and its watch manufacturing facility in Hosur
(Tamil Nadu). In two decades the company has built an impressive watch business to
become India’s largest manufacturer and the world's sixth largest manufacturer of
watches. This has mainly been achieved by developing a formidable distribution
network. The company has amongst the world's largest retail chain of exclusive retail
showrooms for watches called ‘The World of Titan’ spread over 100 towns.

Retail specifications

Shop 1 – Fifth Avenue, Heera Panna, Haji Ali

Brands Available – Titan, Raga, Nebula (Lifetime Guarantee with 18k gold), Tommy
Hilfiger (franchise), Xylys(Swiss brand ), Skinn perfumes (French brand, Eru De Parfum)

Price Range

Titan – 1595 to 22000 Rs

Raga – 3500 to 17000 Rs

Nebula - 28000 to 260000 Rs

Tommy Hilfiger – 6000 to 13000 Rs

Xylys – 11000 to 28000 Rs

Skinn perfumes – 545 to 2995 Rs

Customer Intake

Avg customers per day – 3,4 customers

Spare Business – servicing and spares of titan products (6,7 customers daily)

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Jamnalal Bajaj Institute of Management Studies MMS 2019

Shop Sales according to


brand
Titan - 88%

Raga - 10%

All other brands


- 2%

Shop 2 – World of Titan showrooms

Brands available - Titan, Raga, Nebula (Lifetime Guarantee with 18k gold), Tommy
Hilfiger (franchise), Xylys(Swiss brand ), Skinn perfumes (French brand, Eru De Parfum),
fast-track, sonata

Price Range

Titan – 1595 to 22000 Rs

Raga – 3500 to 17000 Rs

Nebula - 28000 to 260000 Rs

Tommy Hilfiger – 6000 to 13000 Rs

Xylys – 11000 to 28000 Rs

Skinn perfumes – 545 to 2995 Rs

Fasttrack – 400 to 7500 Rs

Sonata - 200 to 3500 Rs

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Jamnalal Bajaj Institute of Management Studies MMS 2019

Customer Intake – 60 customers a day, 30 conversions (This includes customers for repair
and spares)

Titan Cost and operational information

Established in 1987 as a joint venture between Tata group and Tamil Nadu Industrial
Development Corporation (TISCO). India’s largest watch manufacturer. World’s sixth
largest watch manufacturer. Corporate head office is located in Bangalore. The watch
manufacturing facility is located at Hosur, Tamil Nadu. The Watch assembly unit –
Dehradun (1990), Rourkee, Pantnagar. Presence over 30 countries (India, Middle East,
Asia Pacific, Africa, Europe)

Separate manufacturing plant for Europe with production capacity of 200000 watches
per annum.

Total watch models available in India before Titan – 400

Titan bought 200 watch models initially. The current span of watch models is around
3000 for all titan brands.

Manufacturing capacity

1987 – 2 million watches per year

Current Production is 11 million quartz analog watches per year.

Plant capacity = 15 million

Reduced Inventory at Titan - Supplier agreements, contracts, and bonded inventory


help to minimize our customers’ inventory exposure. Their ability to integrate with your
JIT or Kanban process assures that we get product only when we need it.

Faster Delivery – The close relationships we have with our approved suppliers has
enabled us to provide an exceptional delivery track record for our customers

Procurement Efficiency – SAP planning systems control every stage of production and
maintain the flow of material crucial for continuous production and on-time delivery of
the project. It also allows us to respond faster to any changes while minimizing inventory
exposure.

Raw Materials for Titan watches include stainless steel, tool steel, leaded brass,
engineering plastic, tools, consumables, case components and specialty movements
for Their watch manufacturing operations.

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Jamnalal Bajaj Institute of Management Studies MMS 2019

For jewelry Titan sources a variety of materials and services such as precious metals, pre-
alloys, tools, consumables including chemicals, packing and packaging materials,
logistics and outsource activities for the manufacturing of plain and studded jewelry
that includes Kundan, Polki, CZ jewelry, Cast route products, Light weight jewelry,
Fashion jewelry, etc for our jewelry manufacturing operations.

Vendors spread across 32 countries, mainly Asia and Europe.

Factory expenses

 Raw materials consumed- Raw materials consumed as a percentage of total


income was 62.66%. Raw materials consumed include gold and other precious
metals, brass, steel, components and assemblies, precious and semi precious
stones and sundry charges. Cost of raw materials for the end quarter of 2017 was
237000 lakhs.
 Purchase of finished goods- Purchase of finished goods. Purchases of finished
goods include products that are traded by the Company including Fastrack eye
gear and Tommy Hilfiger watches. Cost was 52000 lakhs.
 Other manufacturing expenses- Other manufacturing expenses as a percentage
of total income was 2.01%. Other manufacturing expenses include expenses
incurred on power, fuel, maintenance, travel, insurance, communication, rates,
and taxes.

Case Materials for Titan watches

1. Brass: Relatively soft material that can be molded into complicated shapes. Can be
plated for any finish. It is lightweight but tends to get scratches easily as compared to
stainless steel.

2. Stainless Steel: Most popular, corrosion resistant, durable material. Lends fine finish.

3. Surgical Stainless Steel: Non rusting, allergy resistant, durable and lends excellent
finish.

4. Aluminum: Light weight and yet strong metal. Inexpensive and can be easily molded
into various kinds of shapes.

5. Silicone: Rubber-like material that is temperature agnostic. Has in-built water repellent
properties. Often used with smart watches.

6. Solid Gold: One of the oldest materials that is corrosion free. Typically 18kt gold is used
for making watches in yellow, white or rose gold.

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Jamnalal Bajaj Institute of Management Studies MMS 2019

7. Ceramic: It is an unconventional, hypoallergenic material, that is lightweight and has


a smooth, scratch-resistant finish.

8. Titanium: It is a premium alloy that is strong, lightweight, anti-allergic and durable.

Factors that affect performance

1. Restrictions on the import of gold in India-

Currently, under the laws of India, there are certain restrictions on the import of gold,
including restrictions on import of gold from overseas banks and single borrower
restrictions. They have currently entered into contractual/loan arrangements with the
Bank of Nova Scotia, Corporation Bank and the State Bank of India in order to procure
the metal for their business requirements of the Jewellery Division. In view of the
historical rise in the price of gold, they cannot assure that we will be able to secure such
loans on same, if not more favourable terms in the future. Further, they cannot assure
that they will be able to source sufficient quantities of high quality gold at a reasonable
price and from recognised dealers.

2. Increase in competition (Indian companies, unorganized sector as well as Chinese


counterfeit) –

The Indian watch market is currently estimated to be around 42 million units, of which
only 15 million units are from the organized-retail players. Among the organized players,
Titan leads the pack with a lion’s share of around 11 million units across its watch
portfolio of four brands: the flagship brand Titan (addressing the mid- and premium
segments), Sonata (the budget segment), Fast Track (the youth segment) and Xylys
(Titan’s top-end, Swiss-manufactured brand). The second-largest branded player in the
Indian watch market is Timex, with a market share of around 7%.

In the unorganized sector the major problems are the Chinese manufacturer that
provide cheap watches. With very less disposable income in the hands of rural Indians,
titan is unable to penetrate there. In terms if premium category the Swiss and French
brands are giving tough competition to titan since they bring the foreign name with
them. Competition from low cost players, particularly manufacturers from China and
Hong Kong who have lower cost structures and enjoy similar benefits, enables them to
compete significantly especially on price. The unorganized sector, mainly cheap
imports and fakes, accounts for a substantial portion of the watch sales in the Indian
market.

The company faces severe competition in the business areas in which they operate.
Significant increase in competition in the markets in which they sell their products
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erodes their market share and forces them to reduce the prices, which adversely
affects the business and results of operation. Finished watch products are subject to
competition from domestic manufacturers, luxury Swiss watchmakers and inexpensive
watches made by the unorganized sector, at various price points and targeted at
different consumer markets. They also compete at the national level with brands like
Maxima and Timex. International companies having several renowned brands and
supported by strong manufacturing and marketing skills, past financial performance,
advertising budgets and marketing skills are slowly entering the Indian market. These
companies include Casio, Citizen, Esprit, Giordano, Omega, Rado, Seiko, Swatch, Tag
Heuer, and Tissot. The watch industry is also subject to competition from other products
that include a time keeping function, including mobile phones. The competition in the
jewellery sector is primarily from the local traditional family jewellers and a few national
or international players. The main competitive factors in the markets are price, service
quality, sales and marketing skills, the ability to develop customized products with
suitable technological and industry expertise. The company is not able to compete
against the unorganized sector and the local players, since they do not intend to
compromise on the standards of our exquisite designs, the purity of precious metals and
studded jewellery used and the overall high quality of products that they assure their
customers. Further, their offerings may be priced at a premium compared to our
competitors, especially in view of our fixed overheads and national scale of operations.
They face competition from regional players including Mehrasons Jewellers (Delhi),
Tribhuvandas Bhimji Zaveri (Mumbai), B.C. Sen and P.C. Chandra (Kolkata), G.R. Thanga
Maligai (Chennai) and C. Krishnaiah Chetty (Bangalore). The company expects
competition in the branded jewellery market to increase due to the high potential for
growth and demand for branded jewellery. Certain international players like Damas
have also entered the Indian markets with their range of offerings. Local competition in
the precision engineering industry is mainly from a few small and medium enterprises
who have limited exposure to export markets and to some extent from established
manufacturers like Larsen & Toubro Limited and Godrej and Boyce Limited.

3. Brand recognition –

Titan is considered as an economic brand and hence it becomes difficult to persuade


people toward titan in the premium category. The French and Swiss brands provide
foreign feel and thus people feel more intrigued towards buying them.

The company is a part of the Tata group of companies and share the same values and
high quality standards as the other companies in the Tata group. They rely extensively
on our standard operating procedures and internal systems for the effective functioning
of their manufacturing processes and to ensure the quality of their products from the
manufacturing stage to the final stage of sale to the customer. However, the products,

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especially watches and studded jewelry may contain undetected flaws, which could
result in claims against us and damage our reputation, regardless of our responsibility for
such a failure or defect. Any deviation from their internal procedures or if they are
unable to meet the high quality and precision products expected from them by the
public, may adversely affect the reputation and brand image and it may be difficult to
regain customer confidence thereafter.

4. Seasonal Business –

The business exhibits seasonality due to the bunching up of festivals like Durga Puja,
Diwali, Christmas winter clearance sale and the marriage season in this period
(October-January), in which historically it has reported higher sales. The sales in the
second half of financial year have constituted 56.15%, 61.47%, and 61.12% of the total
sales in fiscal 2013, fiscal 2014, and fiscal 2015 respectively. In certain other geographies,
like Europe and South East Asia the company sees similar trends, particularly during
Christmas. The company incur certain fixed operating costs like employee costs, lease
rentals, store-operating costs, distribution and logistics costs irrespective of the
consumer purchasing trends. Any major decline in sales during the festive seasons has a
material adverse effect on the revenues, profitability and financial condition

5. GST and new tax rates –

The new coming of GST is to help tax paying companies like titan. The prices can be
dropped further for mass consumer brands like sonata whereas titan can charge
premium amount for its high end categories.

The company has been in the business of manufacturing watches for two decades.
Over the years, there has been an increase in the rate of taxation of their products and
raw materials that they require. This has affected them in the past and may continue to
have a significant impact on their business. For instance, the rate of excise duty
payable on watches has increased from 2% in 1989 to 16% in this financial year. The
Central Government has with effect from fiscal 2005 imposed an excise duty of 2% on
branded jewellery, which duty would be leviable if the brand name or the trade name,
is indelibly affixed or embossed on the article of jewellery itself. It has been clarified that
hallmarking cannot be considered as branding for the purpose of excise levy. As their
jewellery is sold under the brand name of ‘Tanishq’, they are liable to pay this excise
duty. Their competitors may not have to pay this excise duty for their unbranded
products. Further, there is no certainty that the rate of excise duty on branded jewellery
will not be increased in the years to come.

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Financial Ratio Analysis

1. Debt to equity ratio

The debt to equity ratio for March 2017 for Titan is zero, which means that there is no
debt used to fund future operations. In March 2016, the debt to equity ratio was 0.03,
which is still very low. This means that the company is not in need of funds for expansion
or has sufficient liquidity available since even the equity has not changed for past three
years.

2. Current ratio

The current ratio in March 2016 was 1.92, which dropped down to 1.71 in March 2017.
The increase in current assets was responsible for this. There was an investment by titan
of 37000 lakh Rs. Along with increase in cash and cash equivalent from 11000 cr to
77000 lakh Rs. There was an increase in current liabilities too but the increase in assets
was more so the current ratio dropped down. There was a 30 percent increase in assets
while the increase in liabilities was 42 percent.

3. Quick ratio

The quick ratio is how many percent of the short term liabilities can the company
adhere to. The quick ratio increased from 0.35 to 0.45 from 2016 to 2017. This was done
by increase in cash and cash equivalent from 11000 lakh Rs. to 77000 lakh Rs. The
current liabilities increased by 40% but still the due to increase in cash the quick ratio
increased. The high increase in cash is almost 7 times and is not advisable but could
have been used for expansion or diversification along with current liabilities.

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Jamnalal Bajaj Institute of Management Studies MMS 2019

4. Gross profit ratio

The gross profit ratio increased from 7.53 in 2016 to 8.73 in 2017. This was due to 10
percent increase in profits, which resulted due to increase in operating revenues. This
happened due to increase in pricing due to inelastic demand. Another possible reason
could be increase in production or decrease in competitors.

5. Net profit ratio

The net profit ratio decreased from 6.26 in March 2016 to 6.03 in March 2017, the reason
for this being the increase in revenue. It shows that the company did attain higher
revenues. The increase in revenues is due to increase in sales and production.

6. Interest coverage ratio

The interest coverage ratio decreased from 21.59 in March 2016 to 31.43 in March 2017.
The interest decreased from 4091 to 3131. The PBIT increased from 88000 lakh Rs. to
103000 lakh Rs. The decrease in interest and the increase in PBIT both resulted in high
increase in interest coverage ratio.

7. Return on capital employed

The ROCE ratio increased from 25.6 to 27.06 during the year. It happened due to
increase in PBIT as well as optimum utilization of capital.

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Jamnalal Bajaj Institute of Management Studies MMS 2019

References :

https://www.ibef.org/download/Retail-January-2017.pdf

https://www.ibef.org/download/Titan_Industries.pdf

http://content.icicidirect.com/mailimages/IDirect_TitanCo_Q4FY17.pdf

https://www.sebi.gov.in/sebi_data/attachdocs/1292327306302.pdf

http://eprints.bournemouth.ac.uk/13643/2/TITAN_INDUSTRIES_LTD_-cim_case.pdf

https://www.titan.co.in/company-profile

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