Retain ‘overweight’ rating on Titan as we remain optimistic on FY16/17 growth prospects against the backdrop of modest sales growth for Titan in H2FY15 owing to the absence of advance jewellery purchase schemes and lower gold prices. Our positive view is driven by expectations of better discretionary spending, the introduction of the new Golden Harvest Scheme (GHS), store expansion plans sustaining and a focus on driving higher sales of wedding/studded/fashion jewellery. We have revised down our FY16/17e EPS estimates by 3-5% and set a new December 2015 price target of R430.
In our recent interaction, management noted that the initial response to the revised GHS scheme has been tepid as consumers find the new terms a bit more confusing and returns are less attractive. The need to cap the deposits to 25% of net worth is another challenge which company has to manage. Post the initial trial period, Titan expects to start advertising the new scheme to spur demand.
Local gold price declined -13% y-o-y in Q3FY15 offsetting volume gains. Further absence of jewellery purchase scheme redemptions would weigh on revenue growth for jewellery in H2 . Fourth quarter should see promotional schemes on diamond jewellery to spur