Growth in demand for branded jewelry in India is set to continue with Titan Industries well positioned to capitalize on that trend, according to HSBC Global Research. The report stated that Titan has the distribution and scale of operations to strengthen its brand position, particularly as the company aims to almost double sales of its flagship Tanishq brand in the next three years by opening large, self-run stores.
“We estimate that this move away from the asset-light franchise model in the world’s largest gold jewelry market is likely to capture value equal to 11 percent of the current market cap,” said Amit Sachdeva, an analyst at HSBC. “Running its own stores should provide cost benefits, give Titan a bigger cushion to handle prices competition and improve distribution.”
The researchers explained branded jewelry accounts for just 7 percent of the total market but is growing rapidly as higher income and growing urbanization in India mean that more people can afford Titan’s premium prices. The first mover advantage, brand strength, scale and distribution give it a strong competitive advantage, HSBC noted.
Titan, which operated 786 exclusive retail outlets in 155 towns as of December 31, is India’s largest jewelry retailer with portfolio of brands that includes Tanishq, GoldPlus, Zoya and Mia jewelry.
The researchers noted that several regional Indian jewelers, mainly family-owned businesses, are planning to expand which will put pressure on pricing.
“We think Titan, an urban middle-class consumer play, is well positioned as it offers location and quality design. A move towards diamond-studded jewelry and premium watches is the key to margin expansion, while eyewear and accessories should sustain growth momentum,” HSBC said.
HSBC initiated coverage of Titan with an ”overweight” rating and a price target of INR 290 per share. The stock was trading at INR 238.50 per share in mid-day trade on Monday.