Titan Company Rating: buy: A glittering show in second quarter

By: |
November 02, 2021 12:30 AM

Factoring in the beat, FY22/23e Ebitda up 7/11%; TP raised to `2,867; ‘Buy’ retained

Wedding sales for Q2FY22 were higher than corresponding periods in FY20 and FY21. Coin sales normalised to ~5%.

Titan Company (Titan) reported an exceptional quarter with strong growth (Jewellery up 77% y-o-y, Eyewear/ watches back to pre-Covid) being complemented with margin beat across all the three segments (Ebitda 16% above consensus). Titan also highlighted that performance in the build-up to the festive season has been very encouraging.
Factoring in the outperformance, we are increasing FY22/23e Ebitda by 7%/11%.

We are also increasing the target from 55x EV/Ebitda to 65x to reflect the structurally higher growth trajectory that its jewellery business has been achieving and can further too. Despite its size, Titan makes up hardly ~15%/6% of the organised/total jewellery market. Retain ‘Buy’ with a revised TP of Rs 2,867 (Rs 2,071 earlier).

Marriage segment drives growth; margin performance robust Titan’s Jewellery division turned in a strong recovery with revenue up 77% y-o-y (excluding bullion). In the overall mix, plain recorded higher growth than studded driven by wedding jewellery demand (up 91% y-o-y). Wedding sales for Q2FY22 were higher than corresponding periods in FY20 and FY21. Coin sales normalised to ~5%.

While studded has also grown, it is yet to reach pre-pandemic levels. While gross margin remained below pandemic level (business mix and lower studded share), Ebitmargin at 13% staged a strong recovery, driven by operating leverage, and is the highest since FY18 for Q2 quarter. Eyewear and watches: Multi-quarter high profitability

The Watches & Wearables/Eyewear division had a recovery rate of 96%/104%. Watches & Wearables Division saw sales acceleration across all product brands and share of e-commerce touched 25%+ (~18% pre-pandemic same period). The company highlighted this had a partial activation benefit. Retail/LFS channel sales recovery was at 90%+/ 70%. For the eyewear division, the key highlight is the best ever margin performance (23%).

Outlook: Structural higher growth
Factoring in the beat, we are increasing FY22/23e Ebitda by 7%/11%. We are also increasing the target from 55x EV/Ebitda to 65x to reflect structurally higher growth trajectory that its jewellery business has been achieving and can further too. We maintain ‘BUY/SO’ with a revised TP of Rs 2,867.

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