Titan: Maintain ‘Buy’ with a revised target of Rs 1,435

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Updated: October 10, 2019 7:01:40 AM

Jewellery sales declined sharply with a sudden surge in gold prices denting consumer demand from mid-Jun’19.

Increasing concerns about revenue and earnings growth for many consumer peers will also likely ensure high multiples for TTAN.Increasing concerns about revenue and earnings growth for many consumer peers will also likely ensure high multiples for TTAN.

TITAN has released its pre-quarterly update for Q2FY20. Key highlights:

Jewellery: Recovery in Aug-Sep, but sales impacted by hedges. Jewellery sales declined sharply with a sudden surge in gold prices denting consumer demand from mid-Jun’19. The weakness continued into July too, exerting considerable pressure on sales for the month. However, the retail sales trend bounced back with growth of 15% y-o-y over Aug-Sep’19, possible due to the enhanced level of promotions/schemes.

Consequently, for Q2FY20, retail sales (secondary sales) were up 7% y-o-y, but revenue (according to financials) declined 2% y-o-y due to the adverse impact from hedges maturing in the quarter. Tanishq launched Ahalya – a high-value diamond necklaces collection. In early Oct’19, Virasat collection was launched in the plain gold category for the upcoming festival season of Diwali.

Mia Classics (a diamond intensive collection, designed to go with any season, look and occasion), Smolitaires collection (with designs of single-stone finger rings) and ’Sassy Silver’ (a collection with mother-of-pearl & color stones embedded in 92.5 sterling silver) were launched in Q2FY20. The division added a net of 21 Tanishq stores, with the retail space addition being ~67,000 sq ft. Ajoy Chawla has taken over as CEO of Jewellery division from 1st Oct’19.

Watches: Moderation in growth due to weak consumer sentiment. In watches, the trend of MBO growing at a much faster rate than EBO continued due to wider choice/ variety in terms of brands that the former offers. Ecomm sales also grew strongly in Q2.

Valuation and view: For a business that has, best top-line growth visibility in the large-cap FMCG/retail space, prospects of a continued Ebitda margin improvement because of high SSSG contribution and likelihood of delivering a sustained RoCE improvement (from ~26% in FY19 to ~35% in FY21), the valuation premium is fully justified, in our view. In fact, increasing concerns about revenue and earnings growth for many consumer peers will also likely ensure high multiples for TTAN. We maintain ‘Buy’ with a revised TP of Rs 1,435.

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