Buy Titan Company Ltd For Target Rs.3,000 - Emkay Global
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Q3 update: Robust trends across divisions drive another earnings upgrade
Titan’s Q3 business update highlights a robust growth momentum, indicating healthy market share gains. The Jewelry division reported strong 37% growth (ex-bullion sales) with a 2-year CAGR of 26%. Titan has accelerated network expansion with the addition of 83/29/27 stores for Eyewear/Tanishq/Watches in 9MFY22 (vs. -13/24/-8 in 9MFY21). Factoring in the solid growth momentum, we increase our FY23/FY24 EPS estimates by 8-9% and raise our Dec’22 TP to Rs3,000 (from Rs2,770), valuing the stock at 65x Dec’23E EPS. Retain Buy.
* Jewelry grows 37% with 2-year CAGR of 26%:
Excluding bullion sales of Rs3.4bn in the base quarter, the Jewelry segment grew 37% in Q3 and posted a healthy 2-year CAGR of 26%. The strong sales CAGR was driven by a ~15% jump in ticket size vs. pre-pandemic levels, higher footfalls/conversions and a ~9% CAGR in the store count. Management attributed the strong trends to buoyant jewelry demand during the festive season as well as new customer acquisitions, aided by its regionalization strategy. The studded mix improved slightly vs. the previous year. Enrollments in the Golden Harvest Scheme (GHS) recorded strong double-digit growth. Tanishq’s network was expanded by 14 stores, including two new stores at prime locations in Dubai.
* Growth in Watches/Eyewear ahead of expectations:
Watches/Eyewear also posted 27- 28% growth and a 2-year CAGR of 6%/9%, helped by a 3%/7% store count CAGR and a pick-up in the wholesale channel for watches. Store additions in Eyewear have been particularly strong, with 53 new stores in Q3, in line with TTAN’s commentary on aggressive expansion for this category. Titan added 20 stores for watches in Q3.
* Caratlane grows 64%; TEAL declines by 9%:
Caratlane maintained its strong growth trajectory with 64% growth in Q3 and a 2-year CAGR of ~50%. Growth has been driven by a ~30% store count CAGR and launch of new merchandise (Dunes collection). The rise in the share of studded sales in Q3 should further strengthen the margin improvement trajectory for Caratlane. Other businesses (Taneira, Fragrances and Accessories) grew 44%, aided by high operational stores and new launches. TEAL recorded a 9% decline.
* Q3 expectations: Based on the update, we expect TTAN to report a solid 30% revenue growth to Rs95bn (37% excl Rs3.4bn bullion sale in Q3FY21). A slight improvement in the studded mix and operating leverage should lead to a ~150bps improvement in its EBITDA margins to 13.2%. We estimate a PAT of Rs8.6bn vs. Rs4.2bn in Q3FY21.
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