High Conviction Idea : Buy Titan Company Ltd For Target Rs.2,898 - Centrum Broking
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Business Overview
Titan being a leader in organised jewellery enjoys strong brand image and known for its promise on purity, trust and serving consumers across income pyramids. It’s business is built around discretionary consumption categories such as jewelry, watches, eyewear, fragrances and Indian dress wear – sarees recently.
The company enjoys ~12% market share in the organised jewellery segment, ~50% in watches segment and operate with 357 Tanishq stores across 210 cities.
Investment thesis
Jewelry industry expected to have 37% contribution by FY25 driven by (1) formalization of the sector as seen in apparel industry (2) rising scale of operation in tier 2/ 3 markets (3) shift from mom-and-pop stores with implementation of hallmarking will overall benefit Titan.
Titan with ~50% market share in watches and through its constant technology innovation built new smart watches pipeline to get mind share of millennials. Strong recovery post normalcy to drive volume expected.
Turnaround in eyewear and Caratlane, cost savings to drive margin expansion.
Titan growth strategy revolves around store expansion and focus on the wedding segment, driving market share gains. Omni-channel efforts make it even better placed in the industry.
Key Triggers
Near term: Strong wedding demand and share gains on hallmarking-related challenges for mom-and-pop players.
Medium term: Strong store expansions across Tanishq, rapid expansion for eyewear and huge penetration potential for Caratlane provide healthy growth opportunities ahead.
Long term: Titan to take advantage of regulatory tailwind from hallmarking policy change to augment store expansion
Fast pace of store expansion in non-metros could fuel top-line
Valuation
Titan’s strategy revolves around serving millennials, meeting their aspirational demand with introduction of new designs and channels, and has paid richly. Further industry formalization showing up in market share gains . The turnaround of the Caratlane/eyewear divisions and their profitability potential are not yet priced in. We expect Titan to outperform peers
We have a BUY rating and DCF-based target price of Rs2,898 (implying 63.7x FY24E EPS)
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