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Titan Q2FY23 update: Jewellery segment adds glitter in non-festive quarter!

ICICIdirect Research 07 Oct 2022 DISCLAIMER

What's Buzzing 

Titan, in its Q2FY23 update, posted yet another strong show. The company witnessed strong double-digit growth across most segments (except eyewear division) with overall sales increasing 18% YoY in Q2FY23. 

Context 

The jewellery segment continued to glitter with 18% sales growth (excluding gold bullion sale). The growth is impressive (three-year CAGR: 28%) considering that the previous quarter (Q2FY22) had a high base, which had elements of pent-up demand and spillover purchases of a Covid disrupted Q1FY22. CaratLane (72% owned subsidiary) continues to get scaled up rapidly with sales growth of 56% YoY. Watches division also continued its healthy trajectory with topline growth of 20% (three-year CAGR: 5%).

 Our Perspective 

The revenue growth reported in the quarterly update is ~9-10% higher than consensus estimates. The company has clocked robust growth in H1FY23. As per our estimates, we expect Titan to exit with more than 30% YoY revenue growth in FY23E (driven by jewellery segment). Over the longer term, the company aspires to grow jewellery revenues by 2.5x by FY27 (implied CAGR: 20% from FY22 base). Titan's new growth engine CaratLane has already clocked ~Rs 1000 crore sales in H1FY23 (FY22: Rs 1250 crore) and is on track to achieve Rs 2000+ crore sales in FY23. We expect gross margins to improve in Q2FY23 as studded sales were higher than the overall division driven by good activations and better contribution from high value purchases. Sustained market share gains without compromising on the balance sheet strength (FY22: RoCE 33%, cash & investments: Rs 1500+ crore) has led to P/E multiple expansion over the last couple of years. We continue to remain structurally positive on the stock as high growth visibility justifies premium valuations (huge headroom for growth with current market share at ~6% in Rs 4 lakh crore market).

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