Result Update November 7, 2016

Rating matrix Rating : Buy (TITIND) | 375 Target : | 435 Target Period : 12 months Potential Upside : 16% Hopes pinned on strong festive season... What’s changed? • Titan Company’s (Titan) Q2FY17 results were below our estimates on Target Changed from | 425 to | 435 EPS FY17E Changed from |9.2 to |8.9 the revenue and PAT front. However, the EBITDA margin was higher EPS FY18E Changed from | 12.4 to | 11.3 than our estimates EPS FY19E Introduced at |13.6 • Q2FY17 sales remained flat YoY to | 2652 crore (I-direct estimate: Rating Changed from Hold to Buy | 2955 crore) due to flattish performance of the jewellery segment to | 1987 crore (Q2FY16: | 1983 crore) and 5.2% decline in the watches Quarterly performance segment to | 523.7 crore. Jewellery segment revenues remained Q2FY17 Q2FY16 YoY (%) Q1FY17 QoQ (%) flattish due to grammage de-growth of 32% amid 21% increase in Revenue 2,636.4 2,654.7 -0.7 2,782.5 -5.2 gold price. The eyewear segment grew 7.6% to | 96.2 crore EBITDA 276.3 201.8 36.9 292.2 -5.4 • The operating margin improved 290 bps YoY to 10.5% (I-direct EBITDA (%) 10.5 7.6 288 bps 10.5 -2 bps estimate 9.9%) while EBITDA grew 36.9% YoY to | 276 crore (on a PAT 180.8 146.4 23.5 126.7 42.7 low base in Q2FY16) vs. our estimate of | 294 crore. EBITDA margins

were aided by better gross margins from the jewellery and watches Key financials segment. Higher gross margins for jewellery segment were on the (| crore) FY16 FY17E FY18E FY19E back of higher studded ratio, which was at 42% in Q2FY17 Net Sales 11,265 12,338 14,024 15,957 • Though revenue growth remained flattish, an improvement in EBITDA 945 1,240 1,423 1,691 EBITDA margin enabled the company to report PAT growth 23.5% Net Profit 706 787 1,004 1,206 YoY to | 180.7 crore (I direct estimate: | 197.2 crore) EPS (|) 8.0 8.9 11.3 13.6 Looking for jewellery segment to shine in festive season Valuation Summary Q2FY17 revenues remained flattish due to the flat performance of the FY16 FY17E FY18E FY19E jewellery segment in spite of a weak base in Q2FY16. However, the P/E 47.0 42.2 33.1 27.5 management indicated that sales during Dussehra to Diwali this year were Target P/E 54.7 49.0 38.4 32.0 strong and recorded growth of ~ 40% YoY. The strong performance in EV to EBITDA 35.1 26.7 23.1 19.3 the festive season should provide impetus to revenue growth in Q3FY17. Price to book 9.4 8.2 7.0 5.9 Titan has introduced several new collections before the festive season, RONW (%) 20.1 19.4 21.1 21.5 which, as per the management, have performed well. ROCE (%) 23.4 26.5 26.4 27.0 Enhanced share of studded jewellery to aid margin improvement

Titan is looking to improve its studded gold jewellery share to total Stock Data revenues by enhancing its studded jewellery product portfolio. Higher Particular Amount share from studded jewellery would aid in improving the overall EBITDA Market Capitalisation (| Crore) 33,292.0 margin of the company. Debt (FY16) (| Crore) 113.1 H2FY17 likely to be stronger; long term growth story intact Cash (FY16) (| Crore) 111.7 EV (| Crore) 33,293.4 The slower growth in H1FY17 is expected to be compensated by higher 52 week H/L 445 / 303 growth in H2FY17 due to strong festive season sales in Q3FY17 and a Equity Capital (| Crore) 88.8 weak base Q4FY16 (due to jeweller’s strike in March 2016). The management indicated that the jewellery industry de-grew ~30% in Face Value (|) 1 H1FY17 suggesting tough times for the sector. However, Titan’s Price performance performance is commendable considering the tough regulatory 1M 3M 6M 12M environment curbing revenue growth for the sector with the management Titan Company -9.0 -9.4 2.4 5.9 indicting that the company may have gained market share. Also, the PC Jeweller -4.0 15.7 39.2 6.3 government’s decision to enhance the limit for golden harvest scheme to TBZ 14.6 14.4 15.4 -33.5 35% of company’s networth from the earlier mandated 25% would assist

the company’s revenue growth. The management is continuing with its Research Analysts strategy of aggressive retail expansion and introduction of newer brands Bharat Chhoda at different price points. The company is also looking at garnering a [email protected] higher share of studded jewellery, which would aid in margin growth in Cheragh Sidhwa [email protected] FY18E and FY19E. We believe Titan would be a beneficiary of the shift from unorganised to organised players owing to its strong brand and pan-

India retail presence. We maintain our positive stance on Titan with a

revised target price of | 435 (based on 32.0x FY19E EPS of | 13.6). We have a BUY recommendation on Titan Company.

ICICI Securities Ltd | Retail Equity Research

Variance analysis Q2FY17 Q2FY17E Q2FY16 YoY (%) Q1FY17 QoQ (%) Comments

Revenues were lower than our estimates owing to the lower-than-expected performance of the jewellery segment. Jewellery segment revenues remained flattish owing to a decline in volumes due to high gold prices. Jewellery grammage de-growth of 32% happened amid a 21% increase in gold price YoY. Watches segment declined 5% with domestic growth of ~ 5%. However, lower exports and restructuring of the services business in Revenue 2,636.4 2,955.5 2,654.7 -0.7 2,782.5 -5.2 watches resulted in an overall decline in revenues for the watches segment Other Operating Income 15.9 21.6 18.8 -15.3 16.3 -2.3

Raw Material Expense 1,803.6 2,119.1 1,977.4 -8.8 1,974.5 -8.7 Employee Expenses 181.6 206.9 180.4 0.7 191.9 -5.4 Advertising Expenses 98.1 106.4 89.6 9.4 102.7 -4.5 Other Expenses 292.8 251.2 224.3 30.5 237.6 23.2

EBITDA 276.3 293.6 201.8 36.9 292.2 -5.4 The EBITDA margin increased 288 bps YoY due to EBIT margins of jewellery segment increasing 490 bps to 10.98%. The EBIT margin of the watches EBITDA Margin (%) 10.5 9.9 7.6 288 bps 10.5 -2 bps segment was down 283 bps to 12.28% Depreciation 26.0 26.8 24.0 8.2 26.1 -0.5 Interest 11.7 9.1 8.7 34.4 8.8 33.2 Other Income 11.7 12.5 13.8 -15.1 13.4 -12.3

PBT before Exceptional item 250.4 270.1 182.9 36.9 270.6 -7.5 Exceptional Item 3.0 96.9 Exceptional expense relates to one time expenditure on VRS PBT 247.4 270.1 182.9 35.3 173.8 -7.5 Tax Outgo 66.7 72.9 36.5 82.5 47.1 41.6 PAT 180.8 197.2 146.4 23.5 126.7 42.7 PAT growth was curtailed owing to higher tax rate

Key Metrics Jewellery Revenues (| Crore) 1,987.5 2,219.5 1,982.7 0.2 2,138.3 -7.1

Segment EBIT Margin (%) 11.0 6.1 490 bps 9.5 144 bps Watches Revenues (| Crore) 523.7 557.4 552.4 -5.2 491.7 6.5 Segment EBIT Margin (%) 12.3 15.1 -283 bps 1.9 1041 bps Source: Company, ICICIdirect.com Research

Change in estimates FY17E FY18E FY19E (| Crore) Old New % Change Old New % Change Introduced Comments

We have revised downwards our revenue Revenue 12,881.0 12,338.0 -4.2 15,095.0 14,024.5 -7.1 15,956.7 estimates for FY17E and FY18E EBITDA 1,243.0 1,240.0 -0.2 1,517.0 1,423.5 -6.2 1,691.4 EBITDA margin estimate for FY17 has been revised upwards owing to better margins in EBITDA Margin (%) 9.65 10.05 40 bps 10.05 10.15 10 bps 10.60 H1FY17 PAT 821.0 787.3 -4.1 1,102.0 1,004.3 -8.9 1,205.6 EPS (|) 9.7 8.9 -8.6 12.3 11.3 -8.0 13.6

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 2

Company Analysis Revenue trajectory Strong festive season, new collections to boost revenues

18,000 During FY07-14, revenues grew at a CAGR of 26.6% led by a healthy

14,024 15,957 31.2% CAGR in the jewellery segment. Revenues increased from | 2,090 11,903 12,338 11,265 10,916

12,000 10,113 crore in FY07 to | 11,903 crore in FY15. We expect the same to increase to | 15957 crore by FY19E, translating to 12.3% CAGR in FY16-19E. | crore 6,000 During this period as well, we expect the jewellery and watches segment 3,565 3,398 3,088 2,898 2,854 2,783 2,787 2,655 2,650 2,636 2,474 2,437 2,290 to grow at a CAGR of 13% and 8%, respectively, in FY16-19E. Jewellery

- 2,687 revenues in FY17 are expected to be buoyed by GHS redemption, which was absent in FY16 due to regulatory changes. The management FY13 FY14 FY15 FY16

FY17E FY18E FY19E indicated that impact of the PAN card rule for purchases above | 2 lakh Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 has not yet extensively negatively impacted growth. Consumers are getting used to the new regulatory requirement. Source: Company, ICICIdirect.com Research Exhibit 1: Divisional performance

14,000 12,000 10,000 8,000 6,000 4,000 2,000 - FY11 FY13 FY15 FY17E FY19E Q2FY14 Q4FY14 Q1FY15 Q3FY15 Q2FY16 Q4FY16 Q1FY17

Watches Jewellery

Source: Company, ICICIdirect.com Research

In the jewellery segment, Titan plans to add new products at different price points to capture higher volume growth. The company is also looking at the online channel as another growth engine to engage with customers who prefer the convenience of online buying and spend higher time and money on online purchases. Also, the management is introducing new collections (Zuhur, Shubham) with exquisite designs to attract customers into buying jewellery. The domestic performance of the watches segment in Q2FY17 saw an increase of 5% YoY growth. However, overall revenue of the watch segment declined 5% on account of a decline in exports.

Exhibit 2: Jewellery segment growth Exhibit 3: Watch segment growth

80 30 23 63 25 19 20 20 19 60 20 43 46 39 15 13 10 11 10 10 40 7 8 10 7 7 5 % 20 4 0 % 5 2 2 1 20 15 1 7 10 9 4 3 3 - - (5) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

(8) (10) Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 (20) FY11 FY12 FY13 FY14 FY15 (11) FY16 (6) (2) (5)

Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 (15) (15) (10) (15) (13)

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

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Regulatory tightening by the government with the intention of curbing black money could lead to higher compliance from small and unorganised players leading to a level playing field for organised players like Titan resulting in a shift from the unorganised to the organised segment. We expect the company to be a beneficiary of the shift of demand towards the organised segment. Considering its strong brand image and pan- presence, we believe Titan would be able to double its market share in the Indian jewellery market from the current 5%. EBITDA margin, PAT to improve from FY17E onwards Exhibit 4: EBITDA margin trend

12 11.4 10.9 10.6 10.5 10.5 10.6 11 10.0 10.110.2 9.7 9.5 9.4 9.4 9.6 9.6 9.5 10 9.3 9.3 9.1 8.6 % 9 8.4 8.4 8.3 8.4 7.8 7.6 8 7.3

7

6 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

EBITDA Margin

Source: Company, ICICIdirect.com Research

Titan’s operating margin has fluctuated in the past owing to a changing product mix and also impact of rupee movement in the watch segment. We expect the operating margin to remain in the range of 9.5-10% over the next two years. On a segmental basis, the gold business has relatively stable margins. The share of studded jewellery does tend to bring some variation (as studded jewellery has 3.0x gross margins of plain gold jewellery). Also, in Q1FY17, it introduced a lotus themed collection ‘Niloufer’, which was well received by the market. Strategically, Titan is focusing on introducing high margin products and enhancing its studded share, which would enable it to improve its EBITDA margin, going ahead. We expect Titan to grow its PAT at a CAGR of 19.5% in FY16-19E on the back of revenue growth and margin expansion. We expect PAT to increase from | 706 crore in FY16 to | 1,206 crore in FY19E.

Exhibit 5: Net profit trend

1,400 1,206 1,200 1,004 1,000 823 787 725 741 706

| crore 800 600 600 430 400 250 206 240 215 225 150159 182187166 177 191 151146 184 181 200 94 127

- FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Source: Company, ICICIdirect.com Research

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Key takeaways from annual report • FY16 was a challenging year for the company. The company’s sales income declined 5.4% while net profit declined 14.2%. This performance came in the backdrop of an environment where the consumer sentiment did not pick up as expected and regulatory measures adversely affected the jewellery business • For the watches and accessories division, demand remained sluggish as consumer sentiment remained weak for most of the year. A poor monsoon season also dampened the situation with demand slowing down even in the tier 2 cities. The company launched its first smart watch, ‘Titan JUXT’. The initial response was encouraging. The company expects a good growth opportunity in years to come • The company believes there is an opportunity for all its brands to introduce technology watches to garner a significant share in one of the fast growing segments today. Favre Leuba, the heritage Swiss brand that the company acquired, is being actively worked on for a launch towards the end of FY17. The product, marketing and distribution strategy is being worked upon by a newly constituted team largely from Swiss watch industry • The performance of the jewellery division was dampened on account of various regulations imposed by the government in FY16. The fourth quarter was tough owing to regulatory changes like implementation of PAN card rule for purchases above | 2 lakh and industry strike in March 2016 on account of introduction of 1% excise duty that was opposed by the jewellery industry • The management believes the worst has played out on the regulatory and competitive fronts and growth trajectory for Tanishq will come back in FY17, aided also substantially by the Golden Harvest Jewellery purchase scheme that is now fully back in place • Despite a slowdown in retail, the eyewear segment grew 12% in FY16 over previous year. Over 70 new stores were opened during the year taking the total store count to 402. Over 300 new products were introduced during the year. In sunglasses, Fastrack and Titan Glares continued to do well with Fastrack sunglasses selling over 1.10 million pieces during the year

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Valuation Titan continues to enjoy premium multiples owing to: • Consistent topline growth: While revenues grew at a CAGR of 26.6% during FY07-14, we expect the company to continue to grow at 15.8% CAGR during FY16-18E • Strong balance sheet: As compared to other jewellers, Titan is relatively lower leveraged and has a maintained a strong cash balance, which enables it to meet working capital requirements • Healthy financials: Despite the continued growth, Titan has managed to remain debt-free considering the nature of its business. Even after the change in gold regulations, the company has very low debt on a net basis. The company has been consistently reporting return ratios in excess of 25-30% in the last 10 years • Continuous innovations: Titan has always strived hard to achieve topline growth. To achieve this, it has launched various brands across categories and is working hard towards nurturing these brands. It is also exploring new product categories, which are relatively lower penetrated and striving further to grow

Exhibit 6: Valuations Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE (| cr) (%) (|) (%) (x) (x) (%) (%) FY16 11,264.5 (5.4) 8.0 (14.2) 47.0 35.1 20.1 23.4 FY17E 12,338.0 9.5 8.9 11.1 42.2 26.7 19.4 26.5 FY18E 14,024.5 13.7 11.3 27.6 33.1 23.1 21.1 26.4 FY19E 15,956.7 13.8 13.6 20.0 27.5 19.3 21.5 27.0

Source: Company, ICICIdirect.com Research

Slower growth in H1FY17 is expected to be compensated by higher growth in H2FY17 due to strong festive season sales in Q3FY17 and a weak base Q4FY16 (Due to jewellers strike in March 2016)). Titan’s management indicated that the jewellery industry de-grew ~ 30% in H1FY17 suggesting tough times for the sector. However, Titan’s performance is commendable considering the tough regulatory environment curbing revenue growth for the sector with the management indicting that the company may have gained market share. Also, the government’s decision to enhance the limit for golden harvest scheme to 35% of company’s networth from the earlier mandated 25% would assist the company’s revenue growth. The management is continuing with its strategy of aggressive retail expansion and introduction of newer brands at different price points. The company is also looking at having higher share of studded jewellery, which would aid in margin growth in FY18E and FY19E. We believe Titan would be a beneficiary of the shift from unorganised to organised players owing to its strong brand and pan India retail presence. We maintain our positive stance on Titan with a revised target price of | 435 (based on 32.0x FY19E EPS of | 13.6). We have a BUY recommendation on Titan Company.

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Recommendation history vs. consensus estimate

600 100.0 525 90.0 80.0 450 70.0 375 60.0

(|) 300 50.0 (%) 225 40.0 30.0 150 20.0 75 10.0 0 0.0 Oct-14 Dec-14 Mar-15 May-15 Aug-15 Oct-15 Dec-15 Mar-16 May-16 Aug-16 Oct-16

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events Date Event Apr-09 Revenue growth slips to single digits after strong 20-30% topline growth. Consequently, operating margin also takes a hit Dec-09 After three slow quarters, revenue growth bounces back to 30-40% in Q3FY10 Sep-10 Jewellery segment crosses | 1,000 crore (quarterly sales) mark Nov-10 Jewellery segment witnesses 50% YoY growth and also crosses the | 1,500 (quarterly sales) mark Feb-11 Weak watch segment margin (owing to one-time provision) leads blended margin to fall 110 bps YoY to 6.4% Dec-11 Pace of revenue growth dips to 20-25% range owing to a slowdown in jewellery segment Jan-12 The government changes import duty on gold from a flat | 300/ 10 gm to 2% while gold prices go up to that effect, jewellery demand remains unchanged Aug-12 Jewellery segment reports negative growth for the first time in 27 quarters Dec-12 Revival in jewellery segment - posts 40% YoY growth in revenues to | 2,515 crore Jun-13 Jewellery segment posts healthy growth of 47% to | 2,600 crore Sep-13 Jewellery stocks take a beating owing to the 80:20 rule imposed by the government for gold imports Feb-14 Government allows the company to hedge gold in international markets Mar-14 Government decides to allow five Indian private sector banks to import gold within prescribed limits, thereby easing concerns relating to sourcing of gold May-14 RBI allows premium trading houses to import gold (under 80:20 rule) and also re-allows gold on lease Dec-15 Launch of Titan JUXT Smart watches

Source: Company, ICICIdirect.com Research

Top 10 Shareholders Shareholding Pattern Rank Name Last Filing Date %O/S Position (m) Change (m (in %) Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 1 Tamilnadu Industrial Development Corporation, Ltd. 30-Sep-16 27.88 247.5 0 Promoter 53.1 53.1 53.1 53.1 53.1 2 of Companies 30-Sep-16 24.98 221.7 0 FII 21.6 20.5 19.7 21.7 22.0 3 Jhunjhunwala (Rakesh Radheshyam) 30-Sep-16 6.58 58.4 -0 DII 3.2 5.7 3.4 4.5 4.3 4 Matthews International Capital Management, L.L.C. 30-Jun-16 3.43 30.4 -1 Others 22.2 20.8 23.8 20.8 20.6 5 Khazanah Nasional Berhad 30-Sep-16 1.67 14.8 -1 6 Life Insurance Corporation of India 30-Sep-16 1.60 14.2 -0 7 Jhunjhunwala (Rekha Rakesh) 30-Sep-16 1.55 13.7 0 8 J.P. Morgan Asset Management (Hong Kong) Ltd. 30-Sep-16 1.37 12.2 1 9 Franklin Templeton Investment Management Ltd. 30-Sep-16 1.35 11.9 11 10 Franklin Advisers, Inc. 30-Jun-16 1.24 11.0 0

Source: Reuters, ICICIdirect.com Research

Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Franklin Templeton Investment Management Ltd. 70.92 11.95 Matthews International Capital Management, L.L.C. -9.35 -1.55 J.P. Morgan Asset Management (Hong Kong) Ltd. 8.71 1.47 Khazanah Nasional Berhad -7.22 -1.2 Carnegie Fonder AB 2.79 0.47 Kotak Mahindra Asset Management Company Ltd. -3.88 -0.6 Invesco Hong Kong Limited 2.44 0.40 Stewart Investors -2.86 -0.5 Franklin Advisers, Inc. 2.06 0.34 Invesco PowerShares Capital Management LLC -2.87 -0.46

Source: Reuters, ICICIdirect.com Research

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Financial summary

Profit and loss statement | Crore Cash flow statement | Crore (Year-end March) FY16 FY17E FY18E FY19E (Year-end March) FY16 FY17E FY18E FY19E Total operating Income 11,264.5 12,338.0 14,024.5 15,956.7 Profit before Tax 870.7 1,037.5 1,321.4 1,586.3 Growth (%) -5.4 9.5 13.7 13.8 Add: Depreciation 96.9 104.0 113.5 125.8 Raw Material Expenses 8,188.8 8,951.2 10,216.8 11,504.8 (Inc)/dec in Current Assets -421.4 -522.0 -794.3 -910.0 Employee Expenses 681.2 740.3 799.4 877.6 Inc/(dec) in CL and Provisions 68.4 70.1 279.8 416.8 Manufacturing Expenses 507.3 505.9 575.0 686.1 Taxes Paid -164.8 -250.2 -317.1 -380.7 Selling Expenses 567.2 592.2 631.1 750.0 Others -5.8 20.5 13.7 16.4 Administrative Expenses 374.6 308.4 378.7 446.8 CF from operating activities 444.1 459.8 617.0 854.5 Total Operating Expenditure 10,319.0 11,098.0 12,601.0 14,265.3 (Inc)/dec in Investments -41.4 7.4 0.0 0.0 EBITDA 945.5 1,240.0 1,423.5 1,691.4 (Inc)/dec in Fixed Assets -200.8 -122.4 -125.0 -133.7 Growth (%) -18.0 31.1 14.8 18.8 Others -38.4 35.8 31.4 23.9 Depreciation 96.9 104.0 113.5 125.8 CF from investing activities -280.5 -79.2 -93.7 -109.8 Interest 42.3 56.5 40.7 36.6 Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0 Other Income 64.4 57.9 52.1 57.3 Inc/(dec) in loan funds 15.3 115.1 -19.6 -17.3 PBT 870.7 1,137.3 1,321.4 1,586.3 Dividend paid & dividend tax -235.1 -237.9 -303.5 -364.3 Exception items 99.9 Others -42.3 -56.5 -40.7 -36.6 Growth (%) -17.5 19.2 27.4 20.0 CF from financing activities -262.1 -179.4 -363.8 -418.3 Total Tax 164.8 250.2 317.1 380.7 Net Cash flow -98.5 201.2 159.6 326.4 PAT 705.9 787.3 1,004.3 1,205.6 Opening Cash 210.2 111.7 312.9 472.4 Growth (%) -14.2 11.5 27.6 20.0 Closing Cash 111.7 312.9 472.4 798.8

EPS (|) 8.0 8.9 11.3 13.6 Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Balance sheet | Crore Key ratios (Year-end March) FY16 FY17E FY18E FY19E (Year-end March) FY16 FY17E FY18E FY19E Liabilities Per share data (|) Equity Capital 88.8 88.8 88.8 88.8 EPS 8.0 8.9 11.3 13.6 Reserve and Surplus 3,425.8 3,975.2 4,678.0 5,520.3 Cash EPS 9.0 10.0 12.6 15.0 Total Shareholders funds 3,514.6 4,064.0 4,766.8 5,609.1 BV 39.6 45.8 53.7 63.2

Total Debt 113.1 226.1 203.5 183.1 DPS 2.2 2.3 2.9 3.5 Deferred Tax Liability (23.9) (21.7) (19.0) (15.8) Cash Per Share 1.3 3.5 5.3 9.0 Other long term liabilities - - - - Operating Ratios Total Liabilities 3,603.7 4,268.4 4,951.3 5,776.4 EBITDA Margin (%) 8.4 10.1 10.2 10.6 Assets PBT Margin (%) 7.7 9.2 9.4 9.9 Gross Block 1,403.1 1,566.2 1,712.6 1,814.1 PAT Margin (%) 6.3 6.4 7.2 7.6 Less: Acc Depreciation 634.5 738.5 852.0 977.8 Inventory days 137.5 140.0 140.0 140.0 Net Block 768.6 827.7 860.6 836.3 Debtor days 6.2 10.0 10.0 10.0 Capital WIP 106.1 65.3 43.9 76.1 Creditor days 82.0 70.0 65.0 65.0 Total Fixed Assets 874.6 893.0 904.5 912.5 Return Ratios (%) Investments 74.0 66.6 63.3 60.1 RoE 20.1 19.4 21.1 21.5

Inventory 4,442.2 4,732.4 5,379.3 6,120.4 RoCE 23.4 26.5 26.4 27.0 Debtors 195.1 338.0 384.2 437.2 RoIC* 24.6 27.3 26.9 27.7 Loans and Advances 651.3 740.3 841.5 957.4 Valuation Ratios (x) Other Current Assets 3.7 4.2 4.8 5.6 P/E 47.0 42.2 33.1 27.5 Cash 111.7 312.9 472.4 798.8 EV / EBITDA 35.1 26.7 23.1 19.3 Total Current Assets 5,404.0 6,127.8 7,082.2 8,319.4 EV / Net Sales 2.9 2.7 2.3 2.0 Creditors 1,739.2 1,716.7 1,819.4 2,048.8 Market Cap / Sales 2.9 2.7 2.4 2.1 Other Current Liabilities 819.3 740.3 841.5 957.4 Price to Book Value 9.4 8.2 7.0 5.9 Provisions 190.4 362.0 437.8 509.3 Solvency Ratios Total Current Liabilities 2,748.9 2,818.9 3,098.7 3,515.5 Debt/EBITDA 0.1 0.2 0.1 0.1 Net Current Assets 2,655.1 3,308.8 3,983.5 4,803.8 Debt / Equity 0.0 0.1 0.0 0.0 Others Assets - - - - Current Ratio 2.0 2.2 2.3 2.4

Application of Funds 3,603.7 4,268.4 4,951.3 5,776.4 Quick Ratio 0.3 0.5 0.5 0.6

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

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ICICIdirect.com coverage universe (Retail) CMP M Cap EPS (|) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company (|) TP(|) Rating (| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E Bata India (BATIND) 460 575 Hold 6,825 17.0 15.2 19.2 35.1 39.3 31.1 27.1 22.5 17.7 16.5 18.6 21.8 18.5 15.2 17.4 Shoppers Stop (SHOSTO) 350 400 Hold 3,138 0.2 5.5 5.8 1,466 65.5 61.9 18.5 15.6 14.0 4.2 5.1 5.6 0.4 7.3 6.7 Titan Company (TITIND) 375 435 Buy 33,292 8.0 8.9 11.3 47.2 42.3 33.2 35.1 26.7 23.1 23.4 26.5 26.4 20.1 19.4 21.1 Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 9

RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midca ps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East)

Mumbai – 400 093

[email protected]

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ANALYST CERTIFICATION We /I, Bharat Chhoda, MBA and Cheragh Sidhwa, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities is full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. , The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

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