Titan: Retain ‘buy’ with TP of Rs 1,800; stock up 79% last year

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May 27, 2021 12:20 AM

The Bureau of Indian Standards (BIS) has been running a hallmarking scheme since 2000 and nearly 40% of jewellery sold in India is currently hallmarked.

Still with just 6% market share of the jewellery market, Titan has a penetration-led growth opportunity running into the next couple of decades, which makes Titan one of most attractive compounding stories in India consumer, in our view.

Hallmarking of gold jewellery becomes mandatory: The Government of India is making hallmarking (certification of purity) of gold jewellery mandatory from 15 June 2021 (earlier it was expected from 15 January 2021, but was delayed due to Covid-19). From 15 June, jewellers will be able to sell gold jewellery of certified purity of 14, 18 and 22 carat. The Bureau of Indian Standards (BIS) has been running a hallmarking scheme since 2000 and nearly 40% of jewellery sold in India is currently hallmarked.

This move will reduce the market distortion on pricing: In the absence of this regulation, trading purity with disruptive pricing has been rampant in unorganised trade, which has continued to cause distortion in perceived market pricing of jewellery. Mandatory hallmarking, in our view, will shape the pricing behaviour of trade, trigger consolidation and reduce the artificial gap in pricing between jewellers, making the value proposition of organised jewellers such as Titan more appealing.

Market share gain journey for Titan will accelerate: Titan’s key structural appeal is the consistent market share gain opportunity from the unorganised trade (still nearly 70% of the market). Over time, Titan has significantly enhanced its value proposition (competitive making charges, quantity discounts, design led focus, compelling gold buyback prices) and is consistently penetrating deeper through its expansion in Tier 2-3 towns. Its market share journey has been accelerating and evidence of a strong rebound in FY21 (despite Covid-19-related disruption) further reinforces this. Mandatory hallmarking now makes another structural push to industry transitioning towards organised trade, where Titan has a logical right to win. Still with just 6% market share of the jewellery market, Titan has a penetration-led growth opportunity running into the next couple of decades, which makes Titan one of most attractive compounding stories in India consumer, in our view.

We retain a Buy rating: We retain a ‘buy’ rating and TP of Rs 1,800. Titan’s stock has done exceptionally well (up 79% last year vs 68% return by Nifty50 index), and while FY23 PE of 52x may appear optically expensive, it prices in long-term compounding expectations of c14%, which in our view is within the structural growth potential.

We expect jewellery sales can still compound around 17-18% annually for a long period of time and Titan is also building new businesses such as Taneira, which can become a very significant value driver in the next five years.

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