Our recent interaction with Titan Company’s (Titan) management and visit to Taneira store (saree venture) in Bengaluru reinforce our confidence in the company’s bright prospects. Management perceives GST as a positive development and a potent catalyst for compliant players like Tanishq to gain market share. Growth remains key agenda — targeting 2.5x jump in jewellery business by FY22, ~20% CAGR from current Rs 102 bn sales. Moreover, entry in the saree business via Taneira with 2 pilot stores in Bengaluru has exceeded Titan’s expectations; planning to test waters in Mumbai and Delhi as well. In Q1FY18, performance across businesses was good, especially jewellery (50% growth over Akshay Tritiya in FY17). Maintain Buy.
GST: Jewellery to shine; slight negative for other segments — Management believes GST will enhance overall compliance level in the jewellery industry—root out practice of making multiple bills for single transaction to circumvent the Rs 0.2m PAN card rule. Though increase in tax rate on watches and sun glasses to 28% post GST from ~23–24% earlier is a negative, Titan expects the impact to be negligible as it will avail 400-500 bps as input tax credit on rentals and advertisement. The company will, however, compensate distributors for any loss incurred due to increase in the tax rate.
New businesses: On a roll; eyeing expansions — The Skinn (perfumes) business is doing well and Titan is targeting doubling of sales led by entry in new categories (body mist) and expansion of distribution reach. Similarly, Taneira will be expanded pan-India post completion of the test market phase—initial response has exceeded expectations. Also, in watches, new launches with smart features—Fastrack Reflex (smart band)—are on the anvil.
Outlook and valuations: We envisage Titan to be key beneficiary of share gains led by GST, while entry in new segments and retail expansion will boost growth. Moreover, rising share of studded jewellery and cost optimisation will aid margin. The stock is currently trading at 37.5x FY19e EPS. We recommend Buy and rate it ‘So’ with target price of Rs 600.