Prabhudas Lilladher has given a buy recommendation on Titan Company with a target price of Rs 1,264.
Shares of Titan traded at Rs 1,095.15 around 12:30 pm on 9 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
March quarter highlights:
- Net sales increased 19.3 per cent to Rs 4,670 crore, but gross margins declined 18bps year-on-year (YoY). Ebitda remained flat at Rs 456 crore while Ebitda margins declined 190bps.
- Adjusted PAT remained flat at Rs 365 crore. The company has declared Rs 5 per share as final dividend. Full provision for IL&FS has been made in FY19 (an additional Rs 46 crore in fourth quarter).
- Watches sales increased by 7.5 per cent to Rs 530 crore while Ebit declined 17.6 per cent to Rs 29 crore as margins declined 170bps due to adverse product and channel mix and one time ex-gratia provisions for employees. Watch volumes remained flat in Q4FY18. Smart products, including wearables grew at a rate of over 80 per cent.
- Jewellery sales increased 21.1 per cent to Rs 3,990 crore on 15 per cent volumes growth. Ebit increased 13.3 per cent to Rs 510 crore despite 90bps decline in margins due to inventory valuation loss of Rs 37 crore. Retail sales grew 20 per cent and LTL growth of 14 per cent. In FY19, Tanishq added net 34 stores.
- Eyewear reported 19.7 per cent sales growth to Rs 130 crore with LTL growth of 14 per cent and loss of Rs 1.7 crore on brand investment. The company had 35 lakh customers in FY19 and it aims for 50 lakh customers in FY20.
- Tanishq reported LTL of 14 per cent, WOT 7 per cent, Helios 6 per cent and LFS 16 per cent.
Investment rationale:
The guidance of 20 per cent growth in jewellery sales during FY20, expected gains from backward integration and proactive strategy in eyewear and the success of new collections in watches are the factors that helped the brokerage maintain its positive stance on Titan.
Quarter-to-date (QTD) sales in Q120 grew by nearly 19 per cent and is expected to grow faster on higher number of wedding dates during the quarter and expected demand recovery post elections.
"We expect Tanishq to achieve 21.9 per cent sales and 26.5 per cent Ebidta CAGR over FY18-21 as it gains from the shift towards organized players, led by strong brand, growing store network and focus on high value studded and wedding jewellery," said the brokerage.
The brokerage expects margins in watch business to improve further, led by sustained activations and new launches. Eyewear business has seen strong traction and is targeting to achieve 50 lakh customers in FY20.
"We estimate 25.8 per cent PAT CAGR over FY18-FY21 and value the stock at 45 times FY21 earnings per share (EPS)," said the brokerage.