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Titan Company - Q1FY21 Result Update - ICICI Securities

Posted On: 2020-08-12 02:53:59

As guided by the management in its pre-quarterly update, jewellery division reported revenue de-growth of 57% YoY to Rs. 1783 crore (including bullion sale of Rs. 601 crore). Excluding bullion sale, revenue for the division fell 71% YoY (grammage de-growth: 81%) with sales in May, June around 20%, 72%, respectively. The company is expecting recovery rate to improve at 80% of pre-Covid levels by end of Q2FY21. The impact of pandemic was much more severe on the watches division as the segment reported revenue de-growth of 90% YoY to Rs. 75.0 crore. Sales continued to remain under stress, with a recovery rate of 40% in July. Revenue from eyewear division de-grew 80% YoY to Rs. 30.0 crore. Overall consolidated revenue de-grew 62% YoY to Rs. 1979.0 crore. Gross margins deteriorated 550 bps YoY to 22.0% owing to lower share of studded ratio (18% vs. 25% YoY) and higher demand for plain gold jewellery. Despite sharp reduction in advertising spend (down 86% YoY), profitability in the quarter was materially impacted due to other expenses staying elevated (certain expenses pertaining to ineffective hedge that Titan did not quantify). Hence, EBITDA losses were at Rs. 253.0 crore. Currently, ~97% of stores are operational and management has reiterated its stance of achieving normalcy levels by Q4FY21E.

Valuation & Outlook

Titan continues have a comfortable liquidity position due to adequate banking limits and ability to issue commercial paper at attractive rates. As on June 30, the company is net cash surplus largely owing to sale of excess inventory in the form of gold. Titan remains a quality franchise with strong brand patronage. Over the years, the company has consistently exhibited its ability to gain market share amid a tough industry scenario (gained market share in June & July). Robust balance sheet and asset light distribution model have enabled Titan to outperform peers. While near term headwinds may hamper the performance of the company, we continue to remain structurally positive on the company and its long term growth prospects. We maintain HOLD with a revised target price of Rs. 1170 (52.0x FY22E EPS, previous target price: Rs. 1095).

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Shares of Titan Company Limited was last trading in BSE at Rs.1066.5 as compared to the previous close of Rs. 1107.8. The total number of shares traded during the day was 338798 in over 17907 trades.

The stock hit an intraday high of Rs. 1087.6 and intraday low of 1050.2. The net turnover during the day was Rs. 361417628.

Source: Equity Bulls

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