Titan Company Rating: buy: Resilient show in disrupted quarter

By: |
August 10, 2021 3:15 AM

Strong recovery boosts prospects for FY22; TP raised to Rs 1,980; ‘Buy’ maintained

Akshara (Hina Khan) of Star TV serial "Yeh Rishta Kya Kehlata Hai" during distributing of gifts to winners of Queen of Diamond contest at Tanishq jewellery showroom in NAC Manimajra on Saturday

Titan saw a resilient performance amid disruptions, beating consensus: (i) impressive jewellery sales of cRs 25 bn (excluding Rs 4.2 bn bullion sales) in a disrupted Q1FY22 with store operational days in April/May/June of 73%/10%/ 58% of total. Recovery since June has been robust, led by new customers, faster rebound in metros, and pent-up demand for wedding sales; (ii) Titan delivered a jewellery Ebit margin of +8.4% (vs -4.6% last year), defying the Street’s scepticism on margins, aided by a better mix (studded sales 22% of total vs 18% in Q1), lower gold coin sales (7% vs 14% in Q1), and aggressive cost cutting; (iii) watch sales (up 3x y/y) and Eyewear (up 123% y/y) benefited from better traction in omnichannel sales. Ebit loss for both narrowed substantially y/y; (v) standalone sales grew 74% y/y and Ebitda/clean PAT came in at `1,440/`610 m, ahead of consensus.

Demand outlook remains strong: (i) Consumer sentiment is fast recovering. July demand rebounded well and Titan foresees robust demand in the coming quarters, especially in H2FY22; (ii) it added 26 jewellery stores in FY21 and it aims to open about 35 in FY22 to expand its network in middle India; (iii) together with the benign base in FY21, the accumulated network rollout augurs well for strong revenue growth in FY22e. We pencil in jewellery revenue growth of c25% in FY22e.

Market share gain for Titan should accelerate: (i) Titan is well placed to capture value from the jewellery sector’s long-term growth potential by gaining market share consistently; (ii) mandatory hallmarking (phased implementation from 16 June, 2021) is now another structural push for the industry towards organised trade, where Titan arguably has a ‘right to win’ with 100% of its jewellery hallmarked; (iii) It is also building long-term growth options, including choosing its international foray and new business such as Taneira (ethnic wear), which has begun well and could be a large value driver.

Retain Buy: The current share price builds in long-term earnings growth expectations of c15%, which can easily be achieved, as Titan is in a strong position to capture value from segment growth. We adjust our estimates and increase our TP to Rs 1,980 (from Rs 1,900); retain Buy.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Edible oil prices could fall H1 of 2022 on higher output : Leading analyst Thomas Mielke
2Rs 700-cr shares frozen after raids on Karvy stock broking CMD Parthasarathy: ED
3Bull Run: Sensex soars past 60k; India still the flavour of the season