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Strong business model to aid faster recovery…

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 2.5mn 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.

Q1FY22 Results: Covid induced lockdowns disrupted the performance for Titan in Q1FY22. Green-shoots were visible with strong pent-up demand from July onwards.

* Revenue (excluding bullion sale) grew 120% YoY to | 3004 crore (~60% of pre-Covid levels). Reported revenue grew 75% YoY to | 3473 crore

* Curtailment of marketing spends and overheads resulted in Titan reporting EBITDA margin of 3.9% vs. EBITDA loss of | 253 crore in Q1FY21

* PAT was at | 18.0 crore vs. net loss of | 294 crore in Q1FY21.

What should investors do?

Titan has been an exceptional performer in the discretionary space with stock price appreciating at ~34% CAGR in last five years.

* We continue to remain structurally positive and maintain BUY rating

Target Price and Valuation: We value Titan at | 2110 i.e. 60x 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)

* Thrust on wedding space is bearing fruit with wedding jewellery becoming a critical growth driver and its share in overall jewellery revenue increasing meaningfully

* Gradual recovery in studded ratio to aid margins, going forward

* With share of ~6%, 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 would further enhance market share gains from unorganised space

* Working capital management has been a priority for the company with tight control on inventory and higher focus on gold on lease replenishment. Subsequently, the company has substantially improved its cash position

* We bake in revenue, earnings CAGR of 20%, 47%, respectively, in FY21-24E.

Alternate Stock Idea: Apart from Titan, in our retail coverage we also like Trent

* Inherent strength of brands (Westside, Zudio, Star, Zara) and proven business model position Trent as a key beneficiary of economic unlock

* BUY with a target price of | 1,060/share

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