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* Titan Company (TTAN)’s 4QFY23 revenue was ~19% ahead of our expectation; however, due to lower-than-expected margin, EBITDA and adj. PAT came in line with estimates. Margins were adversely affected by the impact from some actuarial calculations and one-time clean-up of old inventory in the eyewear business (majorly old lenses).

* Three/four year Jewelry sales CAGR was robust at ~33%/22% in 4QFY23. The management indicated that demand was adversely impacted in the later part of March and the first half of April; however, with the onset of the festive season (Akshay Tritiya) and promotional offers, demand momentum revived. The company had one of the best Akshay Tritiya sales this year.

* TTAN boasts of an outstanding track record that surpasses its peers, with superior short-term growth prospects, and exceptional long-term growth potential, all of which justify its high valuations. We reiterate our BUY rating with a TP of INR3,080 (premised on 55xFY25E EPS).

Sales beat; margins weaker than expectation

* TTAN’s consolidated revenue grew 32.9% YoY to INR103.6b (est. INR87.3b).

* EBITDA grew 24.3% YoY to INR10.9b (est. INR10.6b) in 4QFY23.

* PBT grew 25.2% YoY to INR9.9b (est. INR9.3b) in 4QFY23.

* Recurring PAT came in at INR7.4b (est. INR7.5b) in 4QFY23, up 11% YoY.

* Consolidated gross margin contracted 100bp YoY and expanded 40bp QoQ to 24.3% (est. 24.6%).

* As a percentage of sales, higher staff costs (up 40bp YoY), stable advertisement costs (down 10bp YoY), and lower other expenses (down 60bp YoY) led to 70bp contraction in EBITDA margin to 10.5% (est. 12.2%).

* FY23 sales/EBITDA/Adj. PAT grew 40.9%/42.5%/40.2% YoY to INR405.8b/INR48.8b/INR32.7b.

* Adjusted segmental performance: Jewelry sales grew 33.3% YoY to INR91.2b. Segment margin declined 60bp YoY/90bp QoQ to 11%. Sales of watches grew 41.3% YoY to INR8.8b, with an EBIT margin of 12% in 4QFY23.

Highlights from the management commentary

* Rise in gold price impact – Demand weakened in March and carried over to the first half of April. However, with the onset of the festive period (Akshay Tritiya) and promotional offers, demand picked up momentum once again. Anticipating a positive outlook for May and June, given the upcoming wedding season with a higher number of wedding dates.

* The watches segment’s margin was affected by some impact from actuarial calculations. Target margins going ahead are ~12-13%.

* International business is performing well. Currently, there are six stores in the UAE and one in the US. The company plans to expand to 25 stores in FY24 with many stores in the GCC region.

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