Buy Titan Company Ltd For Target Rs.4,000 By Motilal Oswal Financial Services
Navigating growth through innovation and adaptability
In FY24, TTAN posted a strong double-digit growth (26% YoY) despite various demand challenges. The company continued to invest in supply chains, digital data, omnichannel capabilities, retail networks, and international markets. However, it witnessed margin pressure across its verticals. Jewelry business margin (standalone, ex-bullion) contracted by 140bp to 12.3% (at par with FY19). Volatile and elevated gold rates amid growing competition affected TTAN’s jewelry margin. The company had to invest more on consumer promotions (lowering premium pricing) to drive growth and acquire customers. Jewelry revenue/EBIT (standalone, ex-bullion) grew 20%/8% YoY. Watches & Wearables division continued to enjoy the premiumization journey, clocking 19% revenue growth. EyeCare division witnessed modest revenue growth (up 5%), with EBIT margin contraction of 300bp to 11% due to high overhead expenses and negative op lev. Other business saw healthy revenue growth. TTAN clocked an impressive five-year CAGR of 21%/20% in sales/PAT. Here are the key takeaways from the company’s FY24 annual report:
* Jewelry: TTAN holds ~8% market share in the Indian jewelry market (Mkt size of INR5.3t FY24, as per company). It is continuously expanding its retail network, with total 937 stores in 282 towns across India as of FY24. Despite volatility in geopolitical conditions and gold prices, TTAN reported revenue growth of 27% to INR455b in FY24, 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 posted a five-year CAGR of 23%/20% in revenue/EBIT.
* Watches and Wearable: It posted sales growth of 19% YoY to INR39b, with EBIT margin of 10% in FY24 (vs. 12% in FY23). Margin contacted mainly due to higher variable expenses. Despite headwinds in the affordable segment, analogue watches grew by 12%, increasing market share in MBO. Premium brands like Titan and international brands saw strong consumer interest. The division expanded to 1,120 stores, adding 116 new stores and renovating 90.
* Eye Care: The division reported 5% growth YoY to INR7.3b and EBIT margin of 5% in FY24. 1HFY24 saw a healthy performance with double-digit growth, while 2HFY24 was weak for the division. It added only 6 new stores of Titan Eye+ and closed 2 fastrack stores, taking the total to 905 stores in India. Currently, it has 4 international Titan Eye+ stores.
* Other Business: Emerging businesses, Fragrances and Fashion Accessories and Indian dress wear (Taneira), reported revenue growth of 48% YoY to INR14.4b in FY24. The fragrance business saw single-digit growth on a high base, with the perfume segment estimated to be around INR 24-26b, growing at a rate of 13-14%. In the Bags segment, the company plans to open 30 new stores by the end of FY25. Taneira scaled up its operations with 32 new stores, reaching a total of 73 stores, and plans to open 35-40 new stores annually for the next three years.
Valuation and view
* TTAN, with its superior competitive positioning (in sourcing, studded ratio, youth-centric focus, and reinvestment strategy), has continued to outperform other branded players. The brand recall and business moat are not easily replicable; therefore, Tanishq’s competitive edge will remain strong in the category. The store count reached 3,096 stores as of Jun’24, and the expansion story remains intact.
* TTAN’s EBITDA margin has been under pressure during FY24 owing to a lower studded mix. It will be critical to monitor the margin outlook amid intensifying competition. The non-jewelry business is also scaling up well and will contribute to growth in the medium term. The business currently accounts for 12% and 9% of revenue and EBIT, respectively.
* We model 16%/18%/20% revenue/EBITDA PAT CAGR during FY24-26E. TTAN’s valuation is rich, but it offers a long runway for growth with a superior execution track record. Reiterate BUY with a TP of INR4,000 (based on 65x Jun’26E EPS)
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