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Healthy performance in Q3; Outlook positive

Titan Co. Ltd. manufactures and retails jewelry and watches. The Company also produces perfume for men and women.

* Titan reported a strong topline growth of 34.0% QoQ (+31.7% YoY) in Q3FY22 led by festive season in Oct & Nov 2021.

* EBITDA margin expanded 120bps QoQ to 14.9% aided by favourable product mix and lower employee costs (as % of sales).

* Ramp up in new stores openings and technical advancement would support future volumes for the firm.

* Titan is expected to perform better in the coming quarters with strong operating performance. With a positive outlook, we upgrade our rating to BUY on the stock with a rolled forward target price of Rs. 2,810 based on 66x FY24E adj. EPS.

Strong growth across verticals

In Q3FY22, company recorded revenue growth of 31.7% YoY to Rs. 10,037cr (34.0% QoQ) driven by sharp continuous evolution in Jewellery segment (+32.5% YoY to Rs. 9,059cr; 37.86% QoQ), due to buoyant festive season demand in Oct & Nov 2021 and net increase in both walk-ins and buyers exhibited +30% growth over Q3FY21. Watches and eyewear segment further aided revenue 28.9% YoY to Rs. 710cr (+3.0% QoQ), and 25.8% YoY to Rs. 156cr (-2.5% QoQ) respectively. Resultantly, EBITDA rose to 68.8% YoY to Rs. 1,499cr (+46.5% QoQ) despite a significant increase in selling and marketing expenses (+98.1% YoY). PAT rose 91.2% YoY (+57.1% QoQ) to Rs. 1,004cr.

Key concall highlights

* The largest brand Titan grew by 26% YoY; Both Fastrack and International brands clocked higher growth rates of 35%+ YoY. New features launched with Titan Smart watch with Alexa enabled device monitoring heart rate, sleep, stress, VO2 measurement, period tracker etc., and has met with huge success.

* In eyewear segment, 53 new store inaugurated on pan-India basis in Q3FY22, with YoY revenue growth of 25% and 51% from retail and trade channels.

* Management expects performance to reach pre-COVID levels in Q4FY22.

Robust performances from subsidiaries

Caratline revenue rose by 63.4% YoY to Rs. 446cr and PBT by 75% YoY to 28cr mainly driven by growth in retail 76% YoY and online clocking 40%. Cartline first Airport was also inaugurated in Bengaluru in the same period. For the US front, company launched various efficiencies drivers to reduce delivery timelines to 3 days for US consumers. While TEAL revenue dipped at 10.1% YoY to Rs. 79cr but with new orders from different industry verticals seems promising for positive growth in upcoming quarters.

Valuation

Titan has been resilient to grab a grip in the path of sustainability and focusing on maintaining lucrative gains in future. Controlled discretionary spends, accelerated cost efficiency programs and calibrated pricing actions will continue to maintain growth momentum in upcoming quarters. We estimate earnings to grow at 57.4% FY21-24E CAGR and EBITDA margin to improve to 13.2% by FY24E. With a positive outlook, we upgrade our rating to BUY on the stock with a rolled forward target price of Rs. 2,810 based on 66x FY24E adj. EPS.

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