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Titan Company Ltd>
  • CMP : 2,514.9 Chg : -0.15 (-0.01%)
  • Target : 2,800.0 (15.23%)
  • Target Period : 12-18 Month

06 Aug 2022

Multiple levers enable strong show in Q1FY23

About The Stock

Titan has transformed itself from a watch maker to an enviable lifestyle company, with jewellery being the leading vertical (85% of revenues). Robust distribution network comprises 2300+ stores spread across 2.9+ mn sq ft.

  • Titan has consistently displayed its ability to gain market share amid a tough industry scenario owing to its robust balance sheet (30%+ RoCE and cash & investments worth ₹ 1500+ crore) and strong brand patronage
Q1FY23 result summary

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.

  • As guided by the management in its pre-quarterly update, the jewellery division (excluding gold bullion sale) reported robust sales growth of 204% YoY to ₹ 7995 crore (impressive three year CAGR: 24%). Watches segment reported 169% YoY growth to ₹ 786 crore (110% of pre-Covid levels), whereas eyewear division reported 173% YoY growth to ₹ 183 crore (123% of pre-Covid levels). Overall consolidated revenues (including gold bullion sale: ₹ 356 crore) grew 172% YoY to ₹ 9443 crore
  • Improvement in studded ratio and positive operating leverage led to robust EBITDA margins (up 870 bps YoY to 12.7%). Absolute EBITDA was at ₹ 1196 crore with robust three year CAGR of 28%
What should Investors do?

Titan has been an exceptional performer in the discretionary space with stock price appreciating at ~32% CAGR in last five years.

  • We continue to remain structurally positive on the stock as high growth visibility justifies premium valuations and maintain BUY on the stock
Target Price and Valuation

We value Titan at ₹ 2800 i.e. 66x FY24E EPS

Key Triggers for future price performance
  • Robust balance sheet and asset light distribution model has enabled it to outpace peers in terms of store addition (to add 40+ Tanishq stores in FY23)
  • Aspires to grow jewellery revenues by 2.5x by FY27 (implied CAGR: 20%). Huge headroom for growth with current market share at ~6% in ₹ 4 lakh crore market
  • Thrust on the wedding space is bearing fruit with wedding jewellery becoming a critical growth driver while its share in overall jewellery revenue has increased meaningfully
  • Gradual recovery in studded ratio to aid gross margins, going forward
Alternate Stock Idea

Besides Titan in our retail coverage, we also like Bata India.

  • Bata has a strong b/s, diversified branded product portfolio and pan India network, which would enable sustained long term profitable growth
    • BUY with target price of ₹ 2170/share



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