Buy Titan Company Ltd For Target Rs.2550
Jewellery glitters with strong consensus beat in Q2
About the stock: Titan has transformed itself from a watch maker into an enviable lifestyle company, with jewellery being the leading vertical (82% of revenues). Robust distribution network comprises 1900+ stores spread across 2.5 mn sq ft.
* Titan has consistently displayed its ability to gain market share amid a tough industry scenario owing to its robust balance sheet (30%+ RoCE and cash & investments worth | 2000+ crore) and strong brand patronage.
Key highlights of Q2FY22 update: Titan witnessed a strong recovery in demand across segments. Overall store operational days exceeded 90% in Q2FY22.
* Titan’s overall Q2FY22 revenue print was significantly ahead of consensus estimates. Standalone revenue growth (excluding gold bullion sale) was at 78% YoY (vs. consensus estimate of ~40%)
* Tanishq continues to gain market share amid robust topline growth of 78% YoY with an impressive two-year CAGR of 32% in Q2FY22. It surpassed preCovid levels in H1FY22 with growth of 16% vs. FY20 levels
* Watches segment witnessed a swift recovery with revenue growth of 73% YoY in Q2FY22 (~96% of pre-Covid levels)
What should investors do?
Titan has been an exceptional performer in the discretionary space with stock price appreciating at ~40% CAGR in last five years
* We continue to remain structurally positive and maintain BUY rating
Target Price and Valuation: We value Titan at | 2550 i.e. 65x FY24E EPS.
Key triggers for future price performance:
* Robust balance sheet and asset light distribution model has enabled it to outpace peers in terms of store addition (to add ~35 Tanishq stores in FY22)
* Tanishq’s penetration is still at a very nascent stage in the Indian jewellery market. This provides immense opportunity for Titan to enhance its market share. Mandatory gold hallmarking is expected to further enhance market share gains from the unorganised space
* Thrust on wedding space is bearing fruit with wedding jewellery becoming a critical growth driver while its share in overall jewellery revenue has increased meaningfully
* Gradual recovery in studded ratio would aid margins, going forward.
* We bake in revenue, earnings CAGR of 22%, 53%, respectively, in FY21-24E.
Alternate Stock Idea: Apart from Titan in our retail coverage, we also like V-Mart
* V-Mart, having over the years built its fortress in non-tier I cities, is well poised to capture market share in the growing ~| 2.5 trillion value fashion industry
* BUY with a target price of | 4100/share
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