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Buoyant prospects beyond the near-term blip

* Titan Company (Titan) held an analyst meet to discuss the company’s growth and operating margin outlook. The company remains optimistic about sustaining strong growth across segments, with a guided 15-20% growth for the core-business and 30- 40% growth for the emerging business (wearables, Taneira, international, fragrance, etc.) over the medium term. However, the key highlight of the meet was the revised EBIT margin guidance for the Jewelry business to about 12% (11.5%-12.5% for consolidated) from 12-13% guided earlier. Looking at the gold inflation and rising competitive intensity (affecting gold premium, etc.), Titan is considering guiding the lower end of the previous guidance. We slightly raise our growth assumption to 17% CAGR over FY24-26, while we cut our Jewelry EBIT margin (standalone) estimate to ~12%. Overall, we reduce our earnings estimates by 4% and 3% for FY25 and FY26, respectively. We reiterate our BUY rating on Titan with a TP of INR4,000 (premised on 65x FY26E EPS). The near-term growth/margin fluctuations are possible, but we do not see any structural change to our long-term thesis.

Jewelry: Growth metrics remain promising

* The jewelry business has grown well, with revenue increasing 19% annually over the past five years and studded jewelry growing 18% annually. Titan's market share has almost doubled to ~8.0% in FY24 from ~4.5% in FY19, and it is further looking to surpass the 10% mark over the next 2-3 years. Titan has 464 Tanishq stores in 270 towns and plans to add over 250 more. The high-value jewelry, higher number of buyers, and both online and physical stores boosted its growth over the years. Titan aims for 15-20% yearly growth and increasing stores to 1,250 (from 900) in the next three years. Mia aims to reach 1m customers and 750 stores and double its revenue. CaratLane plans to have 425 stores and 3m customers.

Watches: Considering market share expansion in the premium segment

* The watch market (analog) stands at INR187b, with a volume of 70m. Titan has a value/volume market share of 27%/20%. Titan has a major presence (~50% share) in the INR1k-25k price range market, which contributes 35% in volume and 45% in value of the market. The market is witnessing a massive premiumization trend, with the >25k price point contributing 1% in volume but >40% in value. In this market, Titan has a 6% share. Further, the market with a <1k price point contributes 65% in volume but 13% in value. In this market, Titan has an 8% share. The company is looking to expand its presence across price points and expects to gain 400bp market share to reach 31% by FY26 (in value terms). Titan is expanding its product portfolio with offerings such as Titan Meteorite and Titan Stellar, alongside strategic partnerships with renowned brands like Cerruti and Kenneth Cole. The company is intensifying its retail presence through Titan World, Helios, and Fastrack outlets, aiming to capitalize on the market's significant growth trajectory. It aims to achieve a 12-14% EBIT margin over the next 2-3 years (vs. 10% in FY24).

EyeCare: Focus on innovations

The Eyecare segment has delivered a 7% revenue CAGR during FY19-24. The market size is huge at INR200b, with the majority (65%) of the market being unorganized and having annual buyers of 80-100m. Titan has a <2% market share with 1.4m buyers. It is trying to bring parity to the affordable segment, launch differentiated products in progressive lenses, and focus on premiumization in sunglasses. The company aims for INR20b revenue with an 11-13% EBIT margin by FY27.

Taneira: Crafting a premium brand in India's ethnic-wear market

The saree market is an INR510b market, and Titan is trying to capture the highquality product and mass premium pricing (INR5k-10k) through Taneira. The company aims to achieve INR10b in revenue by FY27 through various initiatives on products, touchpoints, and pricing. The number of Taneira stores rose to 74 by FY24 from 20 in FY22. It is strengthening its presence in metros by opening 12 new stores in the top 8 metro cities.

International business: Aims to reach 5% of the total revenue

The first international Tanishq store was established in Oct’20 in Dubai. At present, there are eight Tanishq stores in the UAE, four in the US, two in Qatar, and one in Singapore. The first international Mia store was opened in Burjuman Mall, Dubai, in Oct’23. Watches and eyecare witnessed similar store addition journeys. Therefore, Titan was able to double the revenue each year in the last three years. The company plans to have 75 Watch EBOs, 25 Tanishq stores, 10 Titan Eye+ stores, and 5 Mia stores worldwide by FY25.

Outlook and Valuation

With competitive pressure, Titan has been reducing the gold premium over its peers, and is also exploring alternatives to safeguard operating margins (such as reducing making charges, etc.). In the long term, the company’s diverse portfolio instills confidence in sustaining healthy growth with structural drivers such as: 1) the expansion of target users in rising urban cities and the potential of the store network, 2) Titan’s expanding customer base (new buyers contributing 45-50%), 3) multiple jewelry brands catering to consumers across income groups, 4) the rapidly changing consumer preferences (transitioning from unorganized to organized market), 5) further potential for market share gain (currently at 8%), and 6) the increasing number of women and young people entering the workforce. We model 17%, 20%, and 22% revenue, EBITDA and PAT CAGR during FY24-26, respectively. Titan’s valuation is expensive, but its superior competitive positioning (sourcing, studded ratio, consumer trust, youth-centric, reinvestment, etc.), and business moats are not easily replicable. Reiterate BUY with a TP of INR4,000 (premised on 65x FY26E EPS)

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