Maintain SELL on Titan - Jewellery drives performance beat - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

Titan's 1QFY22 topline grew 76% YoY. Jewellery (ex-bullion) grew 115% (2-yr CAGR: -21%). That said, Titan's relative market share gain (in jewellery) doesn't seem material as most big-box jewelers grew at a similar clip or faster. Profitability print beats expectations, primarily driven by the jewelry segment. Jewellery margin stood at 6.5% (HSIE: 1%). Non-jewellery recovered ~44% of 1QFY20 sales (i.e, pre-COVID sales) but disappointed on profitability. We marginally increase our FY23/24 EPS estimates by 3% each to account for lower cost of retailing. Our DCF-based target price stands revised to INR 1,500/sh (earlier INR1,400/sh), implying 51x Jun-23 P/E. Maintain SELL.

1QFY22 highlights: Consolidated revenue grew 76% YoY to INR 34.7bn. Jewellery grew 67% YoY to INR 30.5bn. Adjusted for bullion/B2B sales, jewellery grew ~115% YoY to INR26.2bn (HSIE, INR25.3bn). Standalone volumes were up 124% YoY. Studded ratio, at 22% (vs 18% in 1QFY21, HSIE: 22%), improved YoY but remains sub-optimal. Expansion in jewellery EBIT margin was a given; however, the extent of the swing surprised us (6.5% vs HSIE: 1%) against the backdrop of (1) higher-than-expected bullion sales and (2) similar studded ratio expectations. Non-jewellery recovered ~44% of 1QFY20 sales (i.e, pre-COVID sales) but disappointed on profitability. Watches/eyewear clocked EBIT losses of INR 610/130mn resp (HSIE: INR318/78mn). Adj. consol PAT stood at INR 180mn (HSIE: INR586mn).

Outlook: While Titan's recovery execution (esp. in jewellery) has been on point, a strong bounce-back in volumes is already baked in FY22/23, despite the impact of partial lockdowns (Q1) in Maharashtra and Delhi. Against this backdrop, the margin of safety seems non-existent at 62x Jun-23 P/E. Hence, we maintain our SELL recommendation with a DCF-based TP of INR 1,500/sh; (earlier INR1,400/sh), implying 51x Jun-23 P/E.

Shares of Titan Company Limited was last trading in BSE at Rs. 1799 as compared to the previous close of Rs. 1799.8. The total number of shares traded during the day was 94815 in over 7283 trades.

The stock hit an intraday high of Rs. 1822 and intraday low of 1764.25. The net turnover during the day was Rs. 169561316.

Source : Equity Bulls

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