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About the stock: Titan has transformed itself from a watch maker to an enviable lifestyle company, with jewellery being the leading vertical (85% of revenues). Robust distribution network comprises 2500+ stores spread across 3.2+ 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 | 3500+ crore) and strong brand patronage

Q4FY23 results: Titan’s revenues came in line with our estimates (excluding bullion sales of | 1055 crore) though margins were lower than our expectations.

• As guided by the management in its pre-quarterly update, the jewellery division (excluding gold bullion sale in both quarters) reported healthy growth of 25% YoY to | 8065 crore. On three-year CAGR basis, revenue growth continues to be impressive as watches segment registered 41% YoY revenue growth to | 883 crore (three-year CAGR: 7%) with wearables subsegment registering multi-fold increase YoY. Overall consolidated revenues (including gold bullion sale: | 1055 crore) grew 33% YoY to | 10360 crore (I-direct estimate: | 9338 crore)

• EBITDA margin improved 30 bps YoY to 10.5% (I-direct estimate: 11.4%). Absolute EBITDA increased 37% YoY To | 1089 crore vs. our estimate of | 1060 crore. Consequently, PAT grew 39% YoY to | 736.0 crore (I-direct estimate: | 707 crore)

What should investors do? Titan has been an exceptional performer in the discretionary space with stock price appreciating at ~23% CAGR in last five years.

• We continue to remain structurally positive on the stock as high growth visibility justifies premium valuations and maintain BUY on the stock

Target Price and Valuation: We value Titan at | 3240 i.e. 57x P/E FY25E EPS.

Key triggers for future price performance:

• Robust balance sheet and asset light distribution model have enabled it to outpace peers in terms of store addition

• Aspires to grow jewellery revenues by 2.5x by FY27 (implied CAGR: 20%). Huge headroom for growth with current market share at ~7% in | 4 lakh crore market

• Thrust on the 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 to aid gross margins, going forward

Alternate Stock Idea: Besides Titan in our retail coverage, we also like Trent.

• Inherent strength of brands (Westside, Zudio, Zara) and proven business model position Trent as a preferred pick. BUY with a TP of | 1730

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