Crisil upgrades Titan's rating from AA-plus to AAA with stable outlook

Investment information firm Crisil has upgraded its rating on Tata enterprise Titan's long-term bank facilities totalling Rs 2,850 crore to AAA with a stable outlook from AA-plus with a positive outlook.

It also reaffirmed the rating on short-term bank facility and Rs 500 crore commercial paper programme at A1-plus.

The upgrade reflects Crisil's belief that the company's business profile will continue to improve over the medium-term on account of dominant market position in the jewellery retail segment aided by healthy store additions and strong financial profile.

In addition, the watch segment is expected to witness healthy growth while sustaining the improvement in profitability.

Titan being the market leader in jewellery segment through its Tanishq branded stores is expected to continue its better-than-industry growth. Titan has outpaced revenue growth of other large jewellery retail players rated by Crisil.

Between fiscals 2016 and 2019, revenues grew at a compounded annual growth rate (CAGR) of 21 per cent. Strong brand image and trust coupled with the ability to provide a wide range of designs and robust business model aided Titan's growth.

The growth moderated to 9 per cent in the first half of fiscal 2020 as the industry got adversely impacted by a sudden surge in gold prices in mid-June 2019 and cautious bank lending to the sector.

But demand is expected to be better in the second half of fiscal 2020 on account of festivals, wedding sales and consumers adjusting to the new normal of higher gold prices.

The company is expected to maintain operating margins at 10 to 12 per cent on the back of industry-leading gross margins and a good mix of studded products of about 30 per cent of total sales.

Additionally, Titan's revenue and profitability diversity have been improving aided by a significant improvement in profitability of watch segment over fiscal 2018 and the first half of fiscal 2020 and strong expected growth from Titan's engineering subsidiary, Titan Engineering and Automation Ltd.

Crisil also expects that losses from new ventures like sarees (Taneira) to not have a significant impact on overall profitability and some ventures may also turn profitable over the medium-term as they scale up.

The rating continues to reflect Titan's leadership position in jewellery and watches business, healthy operating efficiency and a strong financial risk profile with expected healthy cash accruals of over Rs 1,300 crore to 1,700 crore, gearing and total outside liabilities to tangible net worth of less than 0.5 times and 1 time respectively over the medium-term.

These rating strengths are partially offset by the company's exposure to regulatory risks in the jewellery division and exposure to competition from other organised and unorganised players in the jewellery segment, said Crisil.

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