Titan - Delivers strong topline growth; margins disappoint - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

Titan's 4QFY21 topline grew 59% YoY (in-line). That said, Titan's relative market share gain (in jewelry) doesn't seem material as most big-box jewelers grew at a similar clip to Titan's estimated 63% YoY (adj. for bullion/ B2B sales). Jewelry margins stood at 10.7% (HSIE: 11.7%), courtesy an inferior revenue mix (higher bullion sales + lower studded ratio) and custom duty cut on gold. Non-jewelry recovered ~98% of its base revenue (INR 8.3bn), but disappointed on profitability due to (1) higher e-comm and (2) lower margin product sales. We largely maintain our FY22/23 EPS estimates and our DCF- based target price of INR 1,300/sh - implying 50x FY23 P/E.

4QFY21 highlights: Consolidated revenue grew 59% YoY to INR 74.9bn (HSIE: INR 75.4bn). Jewelry grew 71% YoY to INR 66.8bn. Adjusted for bullion/B2B sales, Jewelry grew ~63% YoY (HSIE, Rs. 62.9bn). Volumes/realisations were up 45/15% YoY resp. Invoices/ticket sizes/GHS enrollments grew in double digits. Studded ratio at 30% (vs 37% in 4QFY20, HSIE: 32%) remained weak. Jewelry EBIT margins stood at 10.7% (HSIE: 11.7%) courtesy (1) an inferior revenue mix (higher bullion sales + lower studded ratio) and (2) custom duty cut on gold. Watches/Eyewear grew 0/18% YoY resp (in-line). However, the former disappointed on profitability courtesy (1) higher e-comm and (2) lower margin product sales (particularly wearables). Adj consolidated EBIT margin declined 117bp YoY to 9.7%. Adj. PAT grew 66% YoY to INR 5.68bn (HSIE: Rs. 7.62bn).

Outlook: While Titan's recovery execution (esp. in Jewelry) has been on point, a strong bounce-back in volumes is already baked in FY22 despite the impact of Apr-May-21 partial lockdowns in Maharashtra and Delhi. Against this backdrop, margin of safety seems non-existent at 58x FY23 P/E. Hence, we largely maintain our SELL recommendation with a DCF-based TP of INR 1,300/sh (implying 50x FY23 P/E). FY22/23 EPS estimates remain unchanged.

Shares of Titan Company Limited was last trading in BSE at Rs.1491.95 as compared to the previous close of Rs. 1506.3. The total number of shares traded during the day was 145085 in over 8312 trades.

The stock hit an intraday high of Rs. 1516.45 and intraday low of 1471.6. The net turnover during the day was Rs. 216749658.

Source : Equity Bulls

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