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Buy Titan Company Ltd For Target Rs.1,650

Q4 update: Jewelry growth exceeds expectations

* The jewelry division grew 60% in Q4FY21 (ex-B2B sales), led by 32% growth in JanFeb’21 and much higher growth in Mar’21 due to a low base. Q4 growth was driven by market share gains from regional players and a drop in gold prices. Wedding jewelry has been a strong growth driver, increasing its share in overall jewelry and driving market share gain. TTAN also indicated share gains in the key Tamil Nadu region, led by its ‘hero market strategy’ (increase market share of Tanishq). TTAN continued aggressive expansion by adding 26 stores in the jewelry division with 123,000 retail sqft. addition in FY21.

* Studded sales growth was healthy, driven by studded activation in Q4, but the mix was still low on a YoY basis, impacting Q4 margins. Margins are likely to be affected by 1) high coin sales, 2) re-instatement of salaries of mid and senior level employees retrospectively, and 3) one-off inventory loss due to a fall in customs duty, albeit on expected lines.

* Watches recovered to 90% in Jan-Feb’21 and were flat for Q4. E-commerce continued to lead the recovery, while other channels remained on an improving trajectory. In FY21, the division added 13 WOT stores and 11 Helios stores, and closed 13 Fastrack stores on a net basis. The division added 1,500 sqft. of net retail space.

( The Eyewear segment grew 20% in Q4, led by 4% growth in Jan-Feb’21 and strong growth in Mar’21 due to a low base. In FY'21, the division added 15 stores on a net basis, with the addition of ~1,800 sqft. of retail space.

* Other businesses saw an overall recovery of 80% in Q4, led by 93%/80%/50% recovery in Taneira/Fragrances/Accessories.

* Among Subsidiaries/JV, Caratlane maintained its strong growth trajectory with 60% growth in Q4. Caratlane has delivered 26% growth in FY21 (despite Covid-19 challenges), led by 136% growth in its ‘Shaya’ brand (silver and alternate metals brand) and 10x growth in the International business. During the year, 25 new stores were added for Caratlane, taking the total count to 117 across 44 cities in India. TEAL saw a 26% YoY revenue decline, dragged down by continued challenges in the aerospace industry

* Based on the above commentary, we forecast TTAN to report sales/EBITDA/PAT growth of 59%/64%/87% in Q4, excluding the customs duty impact (not quantified). Excluding B2B sales, we forecast EBITDA/PAT growth of 60%/81% to Rs9.4bn/Rs6.5bn.

* Jewelry growth has exceeded expectations and the momentum is likely to remain strong, driven by the wedding season ahead. While Maharashtra, a key market (15-20% of jewelry revenues), may see a short-term impact due to the lockdown, strong momentum in jewelry and pent-up demand would drive further upgrades to our forecasts. The stock trades at 47x FY23E EPS. TTAN remains the preferred pick in the discretionary space. Maintain Buy on TTAN with a TP of Rs1,650.

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