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Strong margin execution; Outlook remains encouraging

* After a strong Q1 revenue update, Titan reported an 8% beat to our EBITDA estimates. Ex-bullion sales, consol. EBITDA margin at 13.2% was 200bps higher than pre-Covid levels, led by operating leverage, exit from loss-making ventures and ~80 bps one-off.

* Jewellery momentum accelerated with 3Y CAGR of 23% in Q1 vs. 15-20% in H2FY22, led by ~8% CAGR in buyers and rest through gold price increase. Amid inflation concerns, Titan indicated satisfactory July performance and retained its 5Y outlook of 20% CAGR.

* Watches/Eyewear delivered higher-than-expected EBIT margins at 13%/20% in Q1. Titan expects 13%/15%+ EBIT margin for the segments in FY23. Store additions were robust with 125 net additions across segments, leading to 11% retail space CAGR vs. pre-covid.

* Raise FY24/25E EPS by 3-4%, led by Q1 beat and upbeat commentary. TTAN offers highteens growth visibility and an improving RoIC profile (~45% by FY25E). Maintain Buy with a TP of Rs2,700 (Rs2,530 earlier), valuing Titan at a reduced multiple of 50x due to 3M rollover. A faster traction in Taneira and Intl. operations remains a potential upside.

Strong Q1 led by both buyer growth and higher gold prices: Ex-bullion sales, the jewellery segment continued to see robust growth trends with 3Y CAGR of 23% in Q1 vs. 15-20% in H2FY22. Strong growth was led by ~8% CAGR in buyers and rest through higher realizations, aided by higher gold price. Amid concerns of slowdown in discretionary spends, Titan retained its 5Y outlook of 20% CAGR, led by focus on acquiring new customers, strong digital presence, and increasing share in states with low-penetration. Caratlane continued to grow strongly with a 55% CAGR and 7% EBIT margin, led by its digital-first strategy and increasing retail presence (up 30% CAGR). Watches/Eyewear posted a slower 3Y CAGR of 2%/8%, helped by 6%/12% store count CAGR. Encouragingly, wearables is seeing robust growth trends and Titan expects its mix in the watch segment to rise to ~30% by FY26E vs. ~10% currently. Store additions were robust with 125 net additions across segments, leading to 11% retail space CAGR vs. pre-covid. FY23E addition targets also remain aggressive, with 40-50 stores for Tanishq, 50-100 stores each for Helios/Titan World, and 250+ stores for the eyewear segment (+35%)

All segments to drive margin improvement: Ex-bullion sales, consol. EBITDA margin at 13.2% was 200bps higher vs. pre-Covid, led by operating leverage, exit from loss-making ventures and ~80 bps one-off gain due to increased diamond prices. Going ahead, Titan expects jewellery margins to remains stable with focus on acquiring new buyers and gaining share in wedding/low penetration states. We believe return of the pre-Covid margin profile in watches (~13%) and turnaround in eyewear/Caratlane should boost margins in FY23E.

Strong franchise with multiple growth levers; Maintain Buy: TTAN offers high-teens growth visibility and an improving RoIC profile (~45% by FY25E), led by low penetration and focus on improving product assortment + profitability turnaround in eyewear/Caratlane businesses. A faster traction in Taneira, handbags, and international operations remains a potential upside. We maintain Buy with a revised TP of Rs2,700 (Rs2,530 earlier), valuing Titan at a reduced multiple of 50x (vs. 51x earlier) due to 3M rollover.

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