Titan – Offers strong revenue growth; margins disappoint – HDFC Securities

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Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

Titan’s 4QFY21 headline grew 59% year-on-year (online). That said, Titan’s relative gain in market share (in jewelry) does not appear to be significant, as most big box jewelers have grown at a rate similar to Titan estimated at 63% year-on-year (adj. for bullion / B2B sales). Jewelery margins stood at 10.7% (HSIE: 11.7%), thanks to a lower revenue mix (higher bullion sales + lower studded ratio) and a reduction in customs duties on the market. ‘gold. Non-jewelry stores recovered ~ 98% of its base revenue (INR 8.3 billion), but disappointed on profitability due to (1) greater e-comm and (2) sales lower margin products. We largely maintain our EPS estimate for FY 22/23 and our DCF-based price target of INR 1,300 / sh, or 50x F / E for FY 23.

Highlights of 4TFY21: Consolidated revenue increased 59% year-on-year to INR 74.9 billion (HSIE: INR 75.4 billion). Jewelry grew 71% year-on-year to INR 66.8 billion. Adjusted for bullion / B2B sales, jewelry was up about 63% year-on-year (HSIE, Rs. 62.9 billion). Volumes / achievements are up 45/15% over one year resp. Invoices / ticket sizes / GHS registrations increased to double digits. The studded ratio at 30% (vs. 37% at 4QFY20, HSIE: 32%) remained low. Jewelery EBIT margins stood at 10.7% (HSIE: 11.7%) thanks to (1) lower revenue mix (higher bullion sales + lower studded ratio) and (2) lower tariffs on gold. Watches / eyewear grew 0/18% year-on-year (online). However, the former disappointed on profitability thanks to the courtesy of (1) greater e-comm and (2) sales of lower margin products (especially portable devices). Adj’s consolidated EBIT margin fell 117 bps year-on-year to 9.7%. Adj. PAT increased 66% year on year to 5.68 billion INR (HSIE: 7.62 billion rupees).

Outlook: While the execution of Titan recovery (particularly in jewelry) has been on target, a strong rebound in volumes is already expected in FY22 despite the impact of partial lockdowns from April to May 21 in Maharashtra and Delhi. In this context, the margin of safety seems nonexistent at 58x FY23 P / E. Therefore, we largely maintain our SELL recommendation with a DCF based TP of INR 1,300 / sh (implying 50x FY23 P / E) . EPS estimates for fiscal year 22/23 remain unchanged.

Shares of Titan Company Limited were last traded in the BSE at Rs 1,491.95 from the previous close of Rs. 1,506.3. The total number of shares traded during the day was 145,085 in more than 8,312 transactions.

The stock hit an intraday high of Rs. 1516.45 and an intraday low of 1471.6. The net turnover during the day was Rs. 216,749,658.

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