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Analyst Day: Near-term focus is on growth vs. margin improvement

Despite Covid-induced challenges in the last two years, TTAN has delivered a ~16% CAGR over FY17-22 and the company expects the growth narrative to remain strong over FY22- 27E. Its FY27E target is a sum of a consistent strong CAGR in Jewelry (~20%) and Caratlane, an incremental contribution of Rs45bn from international operations, Taneira and Handbags (~3% CAGR contribution), and a growth pick-up in Watches/Eyewear vs. a 3-5% CAGR over FY17-22. However, TTAN’s margin targets are weaker than expectations as focus remains on growth amid higher competition, resulting in a 3-5% cut in our EPS estimates. Jewelry EBIT margins are expected to remain stable over FY22-24E vs. our expectations of 70bps of operating leverage-driven gains. Margins of Eyewear, Watches and Caratlane segments will continue to improve. Maintain Buy with a revised TP of Rs2,530 on 51x Jun’24E EPS vs. 53x earlier. Multiple cut is led by a 25bps increase in CoE.

Strong growth to continue in Jewelry: After delivering an 18% top-line CAGR over FY17- 22E, TTAN expects to maintain a strong 20% CAGR in the Jewelry segment over FY22-27E (or 2.5x FY22 revenues). Growth is expected to be driven by retail space expansion (9-10% CAGR), faster growth in wedding/high-value-studded categories, healthy traction in fashion brand Mia and strong growth in the online channel (12x in FY22 vs. FY20 sales). Brand Mia tripled its size to ~Rs3bn in FY22 and is expected to clock Rs20bn in sales in FY25E, led by strong demand for fashion products and doubling of points of sale to 550. Wedding growth is expected to improve with better region-specific assortment, building leadership in Polki/Dor/ Bangles categories and stronger marketing. Faster growth in high-value studded/Zoya will be driven by strong demand trends in the luxury category and formalization leading to increased PAN card rule acceptance.

Watches/Eyewear growth to pick up: TTAN targets the watch segment to achieve Rs100bn in retail sales (UCP) at an 18% EBIT margin in FY26E (vs. 13-14% margins pre-Covid). In our view, this implies a ~25% revenue CAGR over FY22-26E (vs. 3% CAGR over FY17-22E). Growth is expected to be driven by higher store additions/renovations, low-cost product innovations for the mass-market, premiumization and strong traction in smart wearables (~30% mix by FY26E). For Eyecare, TTAN expects EBIT to grow by 50% in FY23E, led by 40% top-line growth and the rest through margin improvement. Store additions are expected to increase in both Watches/Eyecare, with ~270/100/50 additions in Eyecare/WoT/Helios in FY23E vs. ~40/20/15 historical average. Caratlane is expected to maintain its strong trajectory (47% CAGR over FY17-22) with a focus on improving affordability, omni-play and strong design strengths. Profitability also improved with 2%/4% EBIT margin in FY21/22 vs. losses earlier, thanks to better conversions, repeat orders and sharper catalogues.

Expects ~3% CAGR contribution from new segments: TTAN expects Rs10bn/Rs10bn/ Rs25bn top-line for Taneira/Handbags/International in FY27E, led by premium, handmade and contemporary Saree designs under Taneira, trendy assortment for millennials in Fastrack handbags and demand from the Indian diaspora in North America/UAE through 30 intl. stores by FY27E. We remain conservative and a faster traction here remains a potential upside.

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