Hold Titan Company Ltd For Target Rs. 3,725 By JM Financial Services
Margins surprises positively; upgrade from HOLD to BUY
Revenue growth remained robust at 24% YoY (ex-bullion) led by 25% YoY growth in jewellery (healthy SSSG of 15%) and supported by 20%/16% growth in watches/eyewear. Secondary sales, though, grew 20% YoY due to up-stocking on account of Akshay Tritiya. Margin surprised positively. Standalone Jewellery EBIT margin was ~110bps up vs. our estimates to 11.9% despite ~300 bps lower studded share (30%) on account of (i) hedging gains, and (ii) better operating leverage. Surge in gold prices impacted consumer sentiment and resulted in shift towards (i) lower carat products, (ii) light weight jewellery products, and (iii) products with lower making charges. Correction in gold price, if any, will be favourable and will result in increasing number of buyers and improved margins. The management has maintained its Jewellery EBIT margin guidance of 11-11.5% and is targeting high double digit revenue growth for the next few years. We cut our FY26 EPS estimates by ~1% due to higher interest and depreciation expense, while we increase FY27 EPS estimates by ~2% led by improved EBITDA margin and expected reduction in interest expenses on lower debt and GML rate normalisation. We increase our P/E multiple from 55x (earlier) to 57x led by (1) stability in margins, and (2) robust 15%/27%/33% revenue/EBITDA/PAT CAGR over FY25-27. We upgrade our rating from HOLD to BUY with a revised TP of INR 3,725 (earlier INR 3,550) 57x Mar’27 EPS.
* Strong growth in jewellery; in line PAT: Standalone revenue grew ~24% YoY (exbullion), led by 25% underlying growth in jewellery (ex-bullion), robust 20% in watches, and 16% in eyewear. Reported EBITDA grew 30% YoY (7% above JMFe) as EBITDA margin expanded ~80bps YoY to 10.7% (11.1% ex-bullion; JMFe: 10.6%) led by gross margin expansion of ~50bps YoY to 21.7% (JMFe: 22.2%) and ~60bps lower other expenses due to better operating leverage partially offset by ~20bps YoY higher advertisement expenses. PAT grew only 11% YoY to INR 8.7bn (JMFe: in line) as other income declined 22% YoY and interest/ depreciation grew 26%/20% YoY. ETR also came high at 27.9% vs. 19.5% in Q4FY24.
* Robust jewellery margin drives margin expansion: Jewellery underlying standalone revenue (ex-bullion) grew 26% YoY. Secondary sales grew 20% YoY due to up-stocking ahead of Akshay Tritiya. Gold (plain) grew 27% YoY and gold coins grew 64% with healthy SSSG of 15%. Studded ratio stood ~300bps YoY lower at 30%. Underlying EBIT margin (ex-bullion) contracted ~30bps YoY to 11.9% (JMFe: 10.8%); margins were ahead of expectations primarily due to (i) hedging gains, (ii) 30bps gain on primary sales to international subs and (iii) better operating leverage. Consolidated Jewellery revenue grew (ex-bullion) 25% YoY on 23%/69% YoY jump in Caratlane/international business revenue. Caratlane EBIT margin expanded 70bps YoY to 7.9%. 7/12/17 store were added under Tanishq/ Mia/ Caratlane. Watches revenue grew 20% YoY, and EBIT grew by 66% as margin expanded ~330bps YoY to 11.8% (JMFe: 12%). 20/10/11 stores of Titan world/ Helios/ Fastrack were added in 4Q. Eyewear revenue grew 16% YoY, and EBIT grew by 150% YoY as margin expanded ~560bps YoY to 10.4% (JMFe: 8%). The company closed 8/1 store of Titan Eye+Fastrack.
Please refer disclaimer at https://www.jmfl.com/disclaimer
SEBI Registration Number is INM000010361
