Festive season sales were reportedly healthy, despite a high base. Retail growth in Q3FY18 was in line with management’s expectations, despite the advancement of Dussehra sales to Q2FY18. Titan also continued to gain market share. Watches and Prescription Eyewear businesses also saw good growth in the quarter. We maintain our ‘buy’ rating with a revised target price of R975 (valued at 49x December 2019E EPS, a 20% premium to three-year average multiple because of the extraordinarily strong earnings growth prospects – 36% EPS CAGR over FY17-20E). The jewellery division witnessed a good festive season (21st Sept’17 to 31st Oct’17), with retail sales growing in double-digits. If not for the Prevention of Money Laundering Act (PMLA), growth would have been even better despite a high base (50% sales growth in the festive season last year). Suspension of PMLA in early October 2017, however, helped the company boost sales further over the rest of the festive season this year. We note that some part of festive sales was already reflected in 2QFY18 (Dussehra this year was in 2QFY18, while traditionally Dussehra and Diwali fall entirely in 3QFY18).
Titan had already mentioned in its Q2FY18 earnings call that festive season sales were up 16-17% y-o-y. For Q3FY18 too, Titan mentioned that retail growth was healthy and met management’s internal expectations. We, however, note that primary growth for Q3FY18 was lower due to upstocking by franchisees in Q2FY18 (to the extent of Rs 2.5 bn), given the early onset of festive season and also as PMLA was effective last quarter. Q3FY18 saw the launch of : (1) ‘Glitterati’ – high-value diamond studded jewellery and (2) ‘Aveer’ – sub-brand for men’s jewellery. Titan launched Titan We (women’s smart watch) and also exclusive women collection by designer Masaba Gupta.
Loopholes collection for men and women was launched under the Fastrack brand. Also, under the Sonata brand, Titan added Sleek and Essential categories of watches to its men’s collection, and Steel Daisies and Start Dust to its women’s collection. There is no material change to our forecasts. Consistently strong y-o-y sales growth in jewellery point to the sheer magnitude of value migration happening in the Indian jewellery market. In FY17, Titan accounted for only 5% of the Rs 2t jewellery market. However, regulations governing the segment, including identity proofs for all transactions over Rs 200,000, GST implementation and crackdown on black money, have tilted trade decisively in favour of organised players, among which Titan is a dominant player in terms of scale and trust.