Emkay Global Financial's research report on Titan Company
After a strong revenue update in Oct-22, TTAN’s adjusted EBITDA for Q2 was in line with Street estimates. Reported EBITDA was 6-13% ahead of our/Street expectations, due to a 200bps one-off in the Jewelry segment. Jewelry momentum sustained, with 3Y CAGR of 27% in Q2, led by 6-7% expansion in transaction size, with the balance contributed by strong buyer growth. Share of new buyers also increased, to ~46% of total buyers in Q2 vs. 43% in Q1, pointing to market-share gains. Despite a high base, the strong trend endured in Q3TD, with 17-19% growth during the festive period vs. Street expectations of flat growth in H2. We believe this provides scope for a significant earnings upgrade for the Street and a potential re-rating for TTAN. With ~200bps higher studded mix, comparable jewelry margins improved ~30bps to 13.3%. TTAN targets EBIT margin of 12-13% for Jewelry, of 13-14% for Watches and >15% for Eyewear, over the next 12-18 months. TTAN has outperformed Nifty-50 index by 10-15pps over the last 6M/12M. Given a moderate 8% upside on our revised Dec’23E TP of 3,000, we expect the stock to be range bound in the near term.
Outlook
However, we maintain our Buy rating on Titan over a longer investment horizon, given continued potential for consistent earnings compounding, based on its modest market shares in several large and growing product categories. Our revised Dec’23 TP is based on a higher multiple of 53x (vs. 50x earlier). Upgrade in the valuation multiple is driven by 50bps increase in our medium-term growth expectations, on higher growth expectations in Taneira/ Handbags/International, as also higher long term sustainable RoE.
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