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Encouraging Q4 outlook should drive Street upgrades; maintain BUY

TTAN’s adjusted EBITDA for Q3 was 6-9% below estimates, on weaker margins in TEAL subsidiary and intl. investments. Standalone margins were in line with our estimates. Jewelry segment saw UCP growth of 15% in Q3, led by 15-18% growth in Oct-22/Dec22, while Nov-22 saw relatively-weaker growth trends. Interestingly, Jan-23 has seen robust growth trends of >20% on 3Y CAGR basis which should drive Street’s earnings upgrades, in our view. Share of new buyers also rose, to ~49% of total buyers in Q3 vs. 46%/43% in Q2/Q1, pointing to market-share gains. On expected lines, Jewelry margins declined 170bps to 13% in Q3, due to focus on growth and a 100bps one-off in the base. TTAN maintained its near-term EBIT margin target of 12-13% for Jewelry, 13-14% for Watches and >15% for Eyewear. Given strong execution, we remain confident of the high-teens earnings trajectory continuing for TTAN in the medium term. The stock has corrected ~20% in the last 3 months which, in our view, is unwarranted. We maintain BUY on Titan, with Mar-24 TP of Rs2,940, based on 52x FY25 EPS. Stronger traction in the Taneira/Handbags/Intl. businesses remains a potential upside to estimates.

Result summary: The Jewelry division (ex-bullion) saw a strong 3-yr CAGR of 21%, while the watches/eyewear segment saw relatively-slower growth, at ~9% CAGR. Further, Caratlane maintained its strong growth trajectory, with ~50% CAGR. Street estimates point to a ~10% growth in Q4 (vs. our est. of ~20% growth). With strong growth trends in Jan-23, we see scope of upgrade in Street estimates. Strong network expansion continued with addition of 129 net stores across segments, led by 8/48/36/18 additions in Tanishq/Watches/Eyewear/ Caratlane. Consol. EBITDA margins declined ~300bps, on account of the 250bps drop in SA margins and 600bps fall in subsidiary margins (TEAL/Intl.). Studded mix remained stable at 26% and EBIT margins for Caratlane improved ~200bps to 9.5% in Q3.

Earnings-call KTAs: 1) A larger part of the 15% UCP growth in Jewelry was led by buyer growth vs bill-size growth. 2) TTAN has gained share in the South, West (certain areas) and metros, while the East is seeing relatively slower pick-up. 3) Sales through gold exchange increased to 30%, due to aggressive gold exchange offers by TTAN. Such offers are expected to continue, given increase in gold prices. 4) TTAN targets Rs10bn worth of sales by FY27, for newly-launched women hand-wear brand IRTH. 5) TTAN entered the US market with its first store in Q3, and focus is on towns with a high Indian population strata. Overall, the Intl. division has 6 stores (incl. 5 in the UAE) and Company plans adding ~20 more stores in coming 12 months. 6) Wearables contributed ~10% to overall watch sales, with the segment expected to see triple-digit growth in the near term. 7) TTAN’s fine jewelry brand Mia is seeing accelerated expansion, with 51 additions over the last 12 months. 8) TTAN is working on lab grown diamonds, by leveraging its recent US-based acquisition Clean Origin in the space

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