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Retail footprint expansion encourages growth

* In FY23, TTAN posted a strong performance across all business segments, driven by investments in supply chain, digital data, omni-channel capabilities, retail networks, and select international markets. The company reported overall revenue/profit growth of 40.9%/40.2% YoY to INR405.8b/INR32.7b. Over FY18-23, TTAN clocked impressive sales/PAT CAGRs of 20.3%/23.9%. Here are the key takeaways from the company’s FY23 annual report:

* Jewelry: TTAN holds a ~7% market share in the Indian jewelry market. It is continuously expanding its retail network, with total 763 stores in 253 towns across India as of FY23. Despite volatility in geopolitical conditions and gold prices, the company reported revenue growth of 40.7% to INR359b in FY23, led by 1) wedding jewelry, 2) new product innovation, 3) focus on gold exchange using 40-45% recycled gold, 4) leveraging technology, and 5) marketing campaign to attract customers. The division’s five-year CAGR for revenue/EBIT stood at 22%/24.6%.

* Watches and Wearable: It posted sales of INR31b and EBIT margin of 12.3% in FY23. It enjoys a significant share in the organized market. IDC (International Data Corporation) rated Titan as one of top-5 smartwatch companies by market share in India. Premium brands maintained their strong performance, with double-digit growth in Titan and Helios brands.

* Eye Care: The division reported INR6.9b in sales and EBIT margin of 14.2% in FY23. It saw rapid store expansion with the addition of 180 stores in FY23, taking the net count to over 900. It continues to launch products in the premium category and focus on correct selling.

* Other Business: Emerging businesses, Fragrances and Fashion Accessories and Indian dress wear (Taneira), reported revenue growth of 43.5% YoY to INR9.7b in FY23. In Fragrance, it plans to grow through product innovation and brand engagement. In Bags, it expects a growth rate of 13-14% annually over the next five years. Taneira expanded its network by opening 21 new stores in FY23, doubling its retail footprint to total 41 stores.

Integrating technology with business

* Leveraging Technology in business: To maintain leadership in organized jewelry retail, it continues to build strong brands with novel and industryfirst technology solutions.

* Emerging Omni-channel: The company’s mobile point-of-sale (POS) software is designed to seamlessly integrate online and in-store retail experiences. Automation helps to make delivery faster.

* Reimagining watch manufacturing: TTAN continues to make efforts toward tailored automation and technology for the manufacturing of horology components.

* Digital channel enhances customer experience: It has transformed itself digitally and is crafting personalized customer experiences for distinctive competitive edge.

* Building technology solutions for global reach: Titan Engineering & Automation Ltd (TEAL) extends advanced technology solutions to global markets. Currently, it provides solutions in 18 countries, including Germany, France and the US. This strategy also led to an early entry into new domains such as electric vehicles and semiconductors.

Valuation and view

* TTAN has a strong runway for growth in the consumption space in India, with robust earnings growth visibility and compounding for the long term.

* While the recent run-up in gold prices has led to near-term postponement of demand, TTAN has historically performed well when gold prices surged. During 2008-13, when gold prices went up by a 24.8% CAGR, TTAN’s jewelry EBIT and overall PAT clocked a CAGR of 49.7% and 35.6%, respectively. During the same period, its share price saw a 32% CAGR. Since its making charges are also based on the percentage of value of gold, margins will improve after a lag.

* TTAN’s medium- to long-term earnings growth opportunity is best-of-breed, reflected in five-year sales/EBITDA/PAT CAGRs of 20.3%/24.3%/23.9%. Given its sub-10% market share in jewelry and the struggles of unorganized and other organized peers, we see a promising growth outlook for TTAN. We maintain our Buy rating on the stock with a TP of INR3,570.

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