Buy Titan Company Ltd For Target Rs.1,266
- HDFC Securities
Titan is one of the largest, most efficient and profitable specialty retailer in India. It has a strong brand parentage with pan-India presence spread across 1841 stores as on FY20. Jewellery segment continues to be the core business of the company garnering ~80% of overall revenues followed by Watches, Eyewear & others. Going forward, in the long term, Indian retail industry landscape is likely to go through a strong consolidation phase which is likely to benefit companies of the likes of Titan mainly due to its robust balance sheet and phenomenal track record of consistent market share gains. Also, the managements continued focus on new launches and consistent expansion of the product portfolio by entering into newer categories is further likely to fuel future growth.
We expect that Covid-19 led lockdown and slowdown in the economy to lead to subdued growth and sluggish operational performance in FY21. Titan has major revenue and EBIDTA comes from jewellery segment which is highly sensitive to overall macro-economic scenario. Titan also benefits out of a large share of franchisee sales (~655) which helps more in the current times of underutilization.
Titan is a structural growth story and is a strong play on the consumption theme and rides on the long-term opportunity on rising income, increased discretionary spending, gains from penetration and premiumisation trends.
View & Valuation:
We expect that the company will get benefits from the strong market share in jewellery and wrist watches segment, mainly driven by wide range of product portfolio catering mainly to the premium and value add designer jewellery segment.Covid-19 led lockdown will adversely impact with lower revenue growth, adverse operating leverage, expected revenue loss of summer wedding season, which would lead to 5% CAGR in top-line and 5% EPS CAGR over FY20-22E. Its 22% earnings growth in the past 4 years is already among the best in a tough period among its peers quite a few of whom are struggling. Company is trading at 122.80x P/E (Due to recent depressed earnings) which is due to past decent growth and robust financial but current scenario and lower growth in the near term may result in discount to historical valuation. Hence we have taken 23% & 16% discount to 5 years median P/E to arrive at fair value. We feel the base case fair value of the stock is Rs.11192 (64.0x FY22E P/E) and the bull case fair value is Rs.1266 (68x FY22E P/E). Investors could buy the stock on dips to Rs.1087-1091 band (58.5xFY22E EPS) and further add on dips to Rs.996-1000 band (53.5xFY22E EPS).
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