Friday, November 14, 2008

Titan Industries - Stock Recommendation

























































































































































Indian Jewelry Market & Tanishq (Titan Industries)
Ø
Branding and Distribution are key competitive advantages; difficult for new entrants to gain market share
Ø Even highly educated customers find it difficult to gauge the value of Jewelry and so they rely on trustworthy Jewelers to make that decision; Tanishq is slowly but definitively occupying a mindshare of Indian consumers which could last for generations and it would be difficult if not impossible for unorganized retail Jewelers (90% of the market) to compete with Tanishq
Ø Trust in Jewelers is the most important part of a customer’s decision; the Tata name attached to Tanishq along with various initiatives such as a x-ray based Karat-meter are introduced to address this concern
Ø The long term prospects of survival of a Jeweler are also important since a lot of customers exchange Jewelry; Tata’s association with Tanishq seals that issue, moreover, Tanishq has a very simple nationwide Jewelry exchange policy
Ø Consumers are price inelastic to a certain extent owing to brand recognition and trust in Jewelers
Ø The price of gold is the same at any Jeweler and so the only variable is the cost of manufacturing & selling Jewelry; in this case larger production facilities (like Tanishq) could leverage economies of scale
Ø Organized Retail Jewelry is a growing market in India
Ø In almost all western countries, 70% of the population lives in urban areas; as India is globalized, population growth in old/new urban areas is bound to increase, a disadvantage for the traditional unorganized family-Jeweler based model
Ø Business model has high operational leverage
Ø Setting up a chain of nationwide Jewelry stores and a national brand entails high fixed costs; a major barrier to entry for new firms exploring this segment

2 comments:

dharma said...

Precision engineering division is seeing a lot of growth with major contracts from Tata group cos ..im also doing a DCF on Titan..gold prices going up currently will affect sales this qtr

Equity Research Training said...

I am truly agreed with dharma that sales this qtr is going to be affected by hiking gold price. What do the Equity Research says?