10/16/2010

TITAN INDUSTRIE
S

FINANCIAL STATEMENT ANALYSIS

Submitted By | Group 7| Section B | Abhinav, Archit, Nikhil, Pratichi, Ravi, Sumit, Yuvraj

FINANCIAL STATEMENT ANALYSIS

October 16, 2010

EXECUTIVE SUMMARY
During 2009, global production of watches was estimated at 865 million timepieces, a decline of 20% compared to the previous year. This decline was led by sharply lower demand in several recession-hit markets, including USA, Japan, several countries in Europe and the Americas. China and India were the only large nations to display growth in consumer demand. The premium and luxury end of the global watches market witnessed a steep decline during 2009, the export sales of the Swiss watch industry, which is central to this segment, declined by 22% during the year after achieving a record high during 2008. The Japanese watches industry, also amongst the largest in the world, declined by more than 15%. However, the first few months of 2010 appear to be more upbeat, and the global watches industry is therefore forecasting a far better outlook for the year 2010. Looking at the Indian scenario during 2009, the watches market grew by an estimated 6% to a total size of 46 million watches. This is similar to the growth achieved during 2008, but lower than the historical five-year average growth rate of 8%. India was one of the few countries to display growth of the watches market during this challenging year, led both by the resilient Indian economy and consistent marketing investments by key players. During 2009 Titan watches division increased its market share in multi-brand watch outlets by 1.5% in terms of value. The strong nationwide reach, retail presence, distribution and service network, manufacturing and design capability of the company is unmatched in the country, adding further to its appeal and strength. The watches business of the Company has achieved a record profit before taxes of Rs. 139 crores and a robust ROCE of 49 % during 2009-10, notwithstanding challenging market and economic conditions. The company achieved a growth of 22% in sales turnover and profit before taxes went up by 39% over the previous year. Net profit of the company grew by 57% over the previous year ANALYTICAL VIEWPOINT OF THE CALCULATIONS DONE 1. Current Ratio = Current Assets/Current Liabilities

FY10 Titan Industries Limited Industry Average Timex India Group 1.40 1.50 1.68

FY09 1.43 1.31 1.98

FY08 1.44 1.34 1.60

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FINANCIAL STATEMENT ANALYSIS

October 16, 2010

If the current liabilities are rising faster than the current assets, the current ratio will fall and thus it will spell trouble for the company. It provides the single best indicator of the extent to which the claims of the short term lenders will be covered by the most cash-near assets. Both Titan and Timex have similar trends pertaining to Current ratio and the values are in the range of 1.4 1.6 and very close to the industry average.

2. Inventory Turnover = Sales/Turnover

FY10 Titan Industries Limited Industry Average Timex India Group 3.56 3.59 4.19

FY09 3.20 3.10 5.21

FY08 2.95 2.83 6.59

This ratio indicates how many times the inventory is sold and a higher value indicates a well-managed and lean inventory. A lower value indicates that the company may be holding obsolete goods. Timex Inventory turnover has decreased from 6.59 to 4.19 while of Titans it has increased from 2.95 to 3.56. This shows that the Inventory holding characteristics of Titan has improved even though the sales of Titan is 30 times more than that of Timex. There is not much variance in these values with the industry average.

3. Days sales outstanding = Receivables/(Annual Sales/365)

FY10 Titan Industries Limited Industry Average Timex India Group 21.14 33.50 113.86

FY09 20.90 39.44 99.80

FY08 23.70 47.52 74.14

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FINANCIAL STATEMENT ANALYSIS

October 16, 2010

This ratio used to appraise the accounts receivable, and it is calculated by dividing accounts receivables by the average daily sales to find the number of days in which the bills are getting paid. This may be a policy decision of the management and may not be directly related to the performance of the company. Timex has an unusually high DSO and this may be a policy of the management to provide better services to its customers by offering them a larger credit period.

4. Fixed Assets turnover = Sales/Net Fixed Assets

FY10 Titan Industries Limited Industry Average Timex India Group 17.37 14.55 10.42

FY09 13.09 10.70 8.77

FY08 10.67 8.85 6.64

This ratio measures how effectively the company utilises its plant assets and also gives us an idea of the operating efficiency of the firm. It is interpreted with respect to the average age of plant & equipment as historical cost is used for measurement. For times gross block is reduction in gross & net block from is visible in this ratio as in FY08 measure part of older machinery is sold or scrapped. For titan net block is constant and increase in ratio is fuelled by rise in sales employing a better use of fixed resources.

5. Total Assets turnover = Sales/Total Assets

FY10 Titan Industries Limited Industry Average 4 Group 7|Section B|PGP 1 5.99 4.74

FY09 5.30 5.00

FY08 4.34 3.99

FINANCIAL STATEMENT ANALYSIS Timex India Group 2.25 2.00 2.54

October 16, 2010

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates the pricing strategy; companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. For Titan & Timex both this parameter is much less than Fixed Asset Turnover employing a large amount of working capital as current asset required is very high as compared to fixed asset in short term asset like inventories, account receivables. Titan & Times both required high skills of inventory management as major part of current asset is inventory.

6. Total debt to Total Assets = Total debt/Total assets

FY10 Titan Industries Limited Industry Average Timex India Group 0.09 0.10 0.00

FY09 0.24 1.79 0.09

FY08 0.37 1.65 0.01

A Debt ratio of greater than 1 indicates that a company has more debt than assets; meanwhile, a Debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk A low debt ratio may show that company is cash rich, dont have new project to invest or diversify, or nobody is willing to invest in company. So here is case of Titan it is .09 and 0.15 for year 2010 and 2009 respectively which indicates company has strong fundamentals and is safe to invest in.

7. Times interest earned = Earnings before interest and taxes/Interest Charges

FY10 Titan Industries Limited Industry Average Timex India Group 13.64 14.17 19.34

FY09 8.83 1.36 11.34

FY08 9.48 1.41 8.88

It indicates how many times a company can cover its interest charges on a pretax basis. Failing to meet these obligations could force a company into 5 Group 7|Section B|PGP 1

FINANCIAL STATEMENT ANALYSIS

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bankruptcy. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. A high ratio of 13.64 and 8.83 in 2010 and 2009 respectively indicate that Titan has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. Titan is repaying long term debt very rapidly indeed The rationale is that a company would yield greater returns by investing its earnings into other projects and borrowing at a lower cost of capital than what it is currently paying to meet its debt obligations

8. EBITDA Coverage = (EBITDA + Lease Payments)/Interest + Principal Payments + Lease Payments

FY10 Titan Industries Limited Industry Average Timex India Group 2.99 2.86 26.50

FY09 10.25 0.49 14.03

FY08 0.82 0.41 11.82

While this ratio is a very easy way to assess whether a company can cover its interest-related expenses, the applications of this ratio are also limited by the relevance of using EBITDA as a proxy for various financial figures A ratio greater than 1 indicates that the company has more than enough interest coverage to pay off its interest expenses. This ratio extends interest coverage/financial charges by including the parameters like capital payments, lease payments as these are short term, liability and failing to pay them can lead company o Bankruptcy o A downgrade in credit rating leading to increase in capital cost.

Titan industries EBITDA is less as compared to EBIT which confirm the point that firm is paying its loan quickly.

9. Profit Margin on sales = Net income available to common stockholder/Sales

Titan Industries Limited 6 Group 7|Section B|PGP 1

FY10 5.29%

FY09 4.34%

FY08 5.64%

FINANCIAL STATEMENT ANALYSIS Industry Average Timex India Group 5.22% 3.40% 4.61% 5.76% 4.92% 4.14%

October 16, 2010

Ignored other incomes while calculating it. Profit margin on sales for Titan Industry is close to industry average. This is because Titan has major part in industry composition. There is huge difference in profit margin for Titan Industry year on year basis because of decrease in excise since a new plant is opened in excise free zone. Profit margin of Titan is more than Timex but turnover of Titan is very high so it is difficult to compare operating efficiency of two companies.

10. Basic Earning Power = Earnings before interest & taxes /Total Assets

Titan Industries Limited Industry Average Timex India Group

FY10 43.50% 37.36% 10.27%

FY09 35.78% 33.19% 15.21%

FY08 32.60% 26.47% 15.06%

This ratio shows the raw earning power of firms assets before the influence of taxes Titan industry is having high BEP ratio this shows that it has high financial leverage. The reason for this is one high profit margin on sales and second is high return on its assets. For e.g. in the year 2010 fixed assets turnover for Titan 17% and that of Timex is 10%.

11. Return on Total Assets = Net income available to common stockholder/ Total Assets

FY10 7 Group 7|Section B|PGP 1

FY09

FY08

FINANCIAL STATEMENT ANALYSIS Titan Industries Limited Industry Average Timex India Group 31.70% 27.76 8.23% 22.99% 23.07 2.07%

October 16, 2010

24.48% 26.38 10.65%

The difference in Titan and Timex is mainly because of Basic Earning Power. Debt to equity ratio in both companies is very less so this cannot be the reason for Return on Total Assets. Increase in sales in year 2010 is proportionally more than that in case of total assets. This is the reason for difference of Return on Total Assets in two years.

12. Return on Common Equity= Net income available to common stockholder/ Common Equity Titan Industries Limited Industry Average Timex India Group FY10 34.88% 27.76 8.23% FY09 30.31% 23.07 2.28% FY08 38.93% 26.38 10.74%

Trend in Return on Common Equity is same as that in case on Return in total Assets because use of debt is very less in both the companies

13. Price/Earnings Ratio = Price per share / Earning per share

Titan Industries Limited Industry Average Timex India Group

FY10 1.66 NA 0.57

FY09 1.11 NA 0.59

FY08 1.61 NA 0.36

This ratio shows how much investors are willing to pay per $ of reported profit.

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FINANCIAL STATEMENT ANALYSIS

October 16, 2010

Titan has high PE ratio because it shows high growth prospect than Timex and also investor believes that Titan as low riskier than Timex.

14. Price/Cash Flow =Price per share/Cash flow per share

Titan Industries Limited Industry Average Timex India Group

FY10 3.13 NA 0.51

FY09 61.32 NA -0.22

FY08 129.87 NA 0.54

In case of Titan there is decrease in Price/Cash ratio from 2008 to 2010 because increase in share price is proportionally less than increase in cash flow. Share price is increase by twice where as cash flow increase by nearly about 70 times for Titan from year 2008 to 2010. In case of Timex there are that much changes in share price as well as cash flow. Difference between two companies is mainly because of PE ratio that is investors belief in growth prospects.

15. Market/Book Value = Market Price per share / Book Value per share

Titan Industries Limited Industry Average Timex India Group

FY10 11.28 NA 4.75

FY09 6.29 NA 1.37

FY08 10.91 NA 3.89

Difference in this ratio has the same reason that in above two cases. Investors regard Titan with respect to return on their investment. Difference in 2009 and 2010 is because of lower performance of BSE and NSE in year 2009. 9 Group 7|Section B|PGP 1

FINANCIAL STATEMENT ANALYSIS

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