Management’s expectation, in pre-quarterly update for Q4FY19 (and FY19), of further 20% sales growth in FY20 shows that all segments are doing well; ‘Buy’ retained.
TITAN has released its pre-quarterly update for Q4FY19 (and also FY19). The company achieved overall sales growth of 21% in FY19. Jewellery sales grew by 22% after increasing by 25% in FY18, thereby exceeding the originally envisaged 20% five-year sales CAGR target for the second consecutive year. Moreover, management’s confidence in further 20% overall sales growth in FY20—despite a muted economic outlook—is heartening. The Watches division reportedly continued its healthy growth momentum of the past few quarters, ending the year with ~16% growth (implying 14% growth in Q4FY19). Eyewear achieved revenue growth of 23% for the full year (implying 18% growth in Q4FY19). There is no material change to our EPS estimates. We maintain our Buy rating with a target price of Rs 1,300, valued at 51x Mar’21 EPS, 15% premium to three-year average multiple because of its strong earnings growth prospects (26% EPS CAGR over FY19-21e).
Jewellery: 20% sales growth for second consecutive year
TTAN achieved Jewellery sales growth of 22% in FY19, despite slow growth in the industry, which means that segmental sales grew 16% in Q4FY19. A record number of stores were opened during the year, with net additions of 35 stores (opened 40 Tanishq stores and closed five stores; net retail space addition of 90k sq. ft.). These were primarily opened in the middle India towns. The year saw some hit collections like Diamond Treats, Gulnaaz, Utsava and Preen. Recently, TTAN increased its stake in its subsidiary Caratlane to 69.47% from 66.39% via an investment of Rs 1 bn. Caratlane saw growth of 42% in FY19 and it continues to aggressively open retail stores in line with its omni-channel strategy.
Watches: Performance driven by e-com and new product launches
The Watches division reportedly continued its healthy growth momentum in FY19, led by its continued focus on new designs across brands. E-commerce saw the highest growth across channels for the division. Smart products (introduced two years back), including wearables, grew at a strong 80%+, achieving sales of more than Rs 1 bn in FY19. Accessories, too, crossed a turnover of Rs 1 bn during the fiscal.
Eyewear: New strategy of lower ASP working well
The division progressed well on its vision to cater to 10 m customers a year by FY23 (served 3.5 m customers in FY19, up from 2.5 m in the previous fiscal). TTAN’s new strategy of offering a range of products at a more affordable price point continued to work well for the company. The division added 74 new stores (and closed 30), adding 28k sq.ft. of retail space in FY19 at net level.
Valuation and view
Management’s confidence in further 20% overall sales growth in FY20 (stated in the Q4FY19 pre-quarterly release) indicates that not only are all segments firing well but also that jewellery sales are targeted to grow even faster than overall sales growth. High valuations are fully deserved for a business that has perhaps the best top-line growth visibility in the large-cap FMCG/retail space. In addition, operating leverage arising from (a) the high contribution of SSSG to Jewellery sales growth and (b) the recovery in Watches margins are likely to lead to healthy Ebitda margin expansion, bettering the prospects for a best-of-breed and sustained earnings growth performance.