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TTAN’s Q2 EBITDA was 10-11% higher than expected, due to margin coming in 140bps better, despite high competition. Given this strong margin, TTAN is likely to deliver at the top-end of its targeted 12-13% EBIT band in the Jewelry business, warranting a 6-7% increase in FY24-26E EBITDA and 10% growth in standalone TP multiple to 59x. Caratlane has been delivering ~50% topline CAGR and seeing gradual margin increase; further stake consolidation affirms another 3% rise in the multiple to 61x and overall TP upgrade of 18%. We value Caratlane at Rs205bn vs. the Rs170bn valuation paid by TTAN. As for the labgrown threat, TTAN attributed only the fall in solitaire prices (vs. the entire studded pack) to demand-supply mismatch; it expects lower impact with investment focus of Indian consumers vs. global trend. We stay confident about market-share gains, on TTAN’s cross-functional strengths and incremental growth potential from International and Taneira. Despite the 18% upturn in TP, we maintain HOLD, with TP of Rs3,670/sh and suggest to buy on dips.

Titan Company: Financial Snapshot (Consolidated)

Decent print despite weak macros and festive demand shift to Q3

Ex-bullion sales, standalone revenue grew 19%, led by 19%/32%/27% growth in Jewelry/Watches/Other segment and a relatively slower growth at 13% in Eyewear. Among subsidiaries, strong trends continued in Caratlane with 45% growth. TEAL saw a marginal 2% rise in Q2, but growth should revive in coming quarters, with majority of the order-flow inclined towards Q4. Jewelry growth was led by double-digit growth in the number of buyers and the average ticket-size. New buyer proportion at 48% remained healthy. Watches saw better-than-expected growth (32%), led by an exponential growth of 131% in Wearables and a healthy 22% growth in Analog watches. Among watch formats, premium-format Helios fared the best, with 18% LTL growth in Q2. Eyewear growth at 13% was disappointing; International brand sales were better than house brands. Emerging segments grew 28%, led by 64% growth in Taneira. Network expansion was in-line for Tanishq, with 22 store-adds in H1 and 8 openings in Oct-23, with another 15 in the pipeline.

Earnings-call KTAs: 1) TTAN has availed debentures of Rs25bn, payable in two tranches of Rs12.5bn each in 18/24 months at blended rate of 7.74%; these are for funding the added 27% stake purchase in Caratlane for Rs46bn. 2) Q3 will see pressure from the incremental Shrad period and gold-price volatility; but TTAN is hopeful of a pick-up near the festive season, with stability in gold prices. 3) Given the drop in prices, TTAN has taken some price cuts in the solitaire category (vs. the entire studded pack) which may cause some margin dilution in the next 6-8 months. 4) Lower LTL growth of 10% in Caratlane was on the back of only buyer-led focus on growth (no bill-size benefit) and higher number of store openings. 5) TTAN believes the surge in competition is driving an accelerated organized shift and, instead, helping TTAN (vs. impacting it). 6) International stores are seeing better-than-expected traction, with higher studded share; TTAN has recently opened stores in Singapore, Houston, Dallas and Qatar. 7) It expects the Zoya store-count at 15 (from 8 now) by end 2024-Diwali. Margins are lucrative, as Zoya has 95% studded vs. ~30% for Tanishq; TTAN expects 50% growth in Zoya in FY24 over the Rs2.4bn base, with potential to sustain such growth in coming years.

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