Buy Titan Company Ltd For Traget Rs.4,200- Motilal Oswal Financial Service Ltd
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Broad-based growth; a miss on margins
* Titan Company (Titan) posted sales growth of 22% YoY in 3QFY24, largely in line with our estimate. This was driven by a 22% surge in jewelry sales, attributed to the festive season, which resulted in double-digit growth in the number of buyers. Studded revenue rose 14% YoY only, due to soft demand in Dec’23.
* The Watch segment grew 22% YoY, well supported by the premiumization trend. Analog watches rose 18% YoY while Wearables grew 65% YoY.
* Jewelry EBIT improved 19% YoY, which was lower than expected due to a slow growth in Studded jewelry. The EBIT margin was at 11.6%, down 30bp YoY. The Studded ratio was at 24% in 3Q (vs. 26% YoY), leading to a miss on margin. Gold reported 16% YoY inflation that intensified competition, leading to higher consumer offers to protect market share.
* We model 15% revenue CAGR with an EBITDA margin of ~11-12% during FY24-FY26E. In a slower consumption environment, the Jewelry category growth is still outperforming. We will watch the near-term consumption trend, but will continue to like Titan for its best-in-class execution track record and its hunger to keep expanding the user base. Consumers’ preference towards branded Jewelers will continue to keep the category growth rate at an attractive level. Reiterate BUY with a TP of INR4,200.
In-line sales; lower studded ratio results in a miss on margin
* TTAN’s consolidated revenue grew 22% YoY to INR141.6b (est. INR145.3b).
* EBITDA grew 16.2% YoY to INR15.7b (est. INR17.7b) in 3QFY24.
* PBT increased 10.8% YoY to INR13.8b (est. INR16.4b) in 3QFY24.
* Recurring PAT came in at INR10.5b (est. INR12.4b) in 3QFY24, up 15.5% YoY.
* Consolidated gross margin contracted 60bp YoY and flat QoQ to 23.3% (est. 25.8%).
* As a percentage of sales, staff costs, advertisement costs, and other expenses remained stable YoY. Therefore, EBITDA margin contracted 60bp YoY to 11.0% (est. 12.2%).
* Segmental performance: ? Jewelry sales grew 22% YoY to INR127.4b (excluding gold ingots, sales rose 24% YoY to INR125.6b), while margin declined 30bp YoY to 11.6%.
* Watches sales grew 21.6% YoY to INR9.9b, while EBIT margin contracted 440bp YoY to 5.7% in 3QFY24.
* In 9MFY24, net sales/EBITDA/Adj. PAT rose 28%/8%/7%.
Highlights from the management commentary
* The significant growth was propelled by the jewelry and watches sectors, whereas sales growth in the eye care, ethnic wear, and perfume categories faced challenges.
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