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Titan Company Q1FY23 Review: Multiple levers enable strong show in Q1FY23

ICICIdirect Research 08 Aug 2022 DISCLAIMER

What's Buzzing:

Titan reported a healthy operational performance with strong beat on the margins front. Buoyed by strong festive/wedding season and a normalised quarter after a gap of two years, the jewellery division registered its second highest ever quarterly revenues in Q1FY23. Improvement in studded ratio and positive operating leverage led to robust EBITDA margins.

Context:

The jewellery division (excluding gold bullion sale in both quarters) reported robust sales growth of 204% YoY to Rs 7995 crore (impressive three year CAGR: 24%). Watches segment reported 169% YoY growth to Rs 786 crore (110% of pre-Covid levels), whereas eyewear division reported 173% YoY growth to Rs 183 crore (123% of pre-Covid levels). Overall consolidated revenues (including gold bullion sale: Rs 356 crore) grew 172% YoY to Rs 9443 crore (I-direct estimate: Rs 9329 crore). Owing to better studded mix, gross margins expanded by 310 bps YoY to 25.5% (I-direct estimate: 24.5%). On account of positive operating leverage, EBITDA margins expanded significantly by 870 bps YoY to 12.7% (Q4FY22: 10.2%, I-direct estimate: 11.3%). Absolute EBITDA stood at Rs 1196 crore with robust three year CAGR of 28%. PAT was at Rs 790 crore (Q1FY22: 18.0 crore, I-direct estimate: Rs 708 crore). On a three year CAGR basis, PAT growth was at an impressive 29%.

Our Perspective:

The revenue performance in Q1FY23 across its product bouquet within consumption categories like jewellery, watches and eye care division was strong along with improvement in margin profile. The company is targeting aggressive expansion of retail footprint across all divisions to achieve its targeted revenue CAGR of 20% over the next few years with operating leverage expected to aid in maintaining positive bias in margin profile. We believe that Titan is well placed to continue to gain market share from unorganised players and recent regulatory changes like compulsory gold hallmarking is likely to accelerate the pace of market share gain for organised players. We expect revenue and earnings growth trajectory to be strong from here on. Robust business model (30%+ RoCE) and strong earnings visibility will enable Titan to sustain its premium valuations, going forward.

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