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Healthy double-digit growth across businesses

TTAN released its pre-quarterly update for 2QFY23. Here are the key highlights:

* Overall standalone sales are expected to grow at 18% YoY in 2QFY23.

* The company added 105 stores in 2QFY23.

* The management said is experiencing positive consumer sentiments across categories during the current festive season.

Jewelry division:

* The Jewelry division grew 18% YoY over a high base.

* Gold jewelry (plain) clocked a low double-digit growth, whereas sales of Studded jewelry were higher than that of the overall division.

* The product mix improved YoY, but is still below pre-pandemic levels.

* New store commissions (net) comprised of eight domestic stores in Tanishq, 16 in Mia by Tanishq, and one in Zoya.

Watches and the Wearables division:

* This division grew 20% YoY, clocking its highest quarterly revenue in 2QFY23.

* Demand was led by a strong desire to own premium and differentiated Watches, assisted by higher volume and average selling prices YoY.

* It launched Titan and Fastrack smart watches, with a Bluetooth calling feature in 2QFY23.

* It added seven stores of Titan World, 14 of Helios, and two in Fastrack.

Eyecare division

* Titan Eye+ grew in healthy double-digits YoY. However, lower trade and distribution sales led to the overall division growing by only 7%.

* It added a net of 36/two stores of Titan Eye+/Fastrack prescription stores.

Other businesses (Fragrances and Fashion Accessories or F&FA and Indian Dress Wear)

* F&FA grew 34% YoY on the back of a 37%/29% growth in Fragrances/Fashion Accessories.

* In offline channels, LFS grew faster as compared to Trade. Both channels clocked higher growth than the overall division.

* Taneira grew 114% YoY. New stores opened in FY22 contributed meaningfully. It opened five new stores in 2QFY23.

Key subsidiaries:

Titan Engineering & Automation (TEAL) (a wholly-owned subsidiary)

* TEAL grew 139% YoY, with the Automation Solutions division growing 240% YoY and the Aerospace and Defense division clocking 66% growth

CaratLane (72.3% owned)

* CaratLane grew 56% YoY, led by promotions around Raksha Bandhan and hero launches in 2QFY23.

* As a category, solitaires grew the fastest, followed by studded and gold jewelry.

* The Studded segment constitutes ~70% of the business, despite a larger base

Valuation and view

Earnings growth visibility for TTAN remains strong. It has compounded earnings by ~20% for an elongated period of time. In the Jewelry industry, which is organizing at a rapid space, it is clearly at the vanguard in terms of growth among organized players. Its runway for growth is long, with a market share of ~6%. Unlike other high-growth categories, the competitive intensity from organized and unorganized peers in Jewelry is considerably weaker. The structural investment case for TTAN is intact. We maintain our Buy rating with a TP of INR2,970.

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