Event update: Titan Company (Outperformer) - Weak demand and high base to impact 1QFY19
Event
Titan released its 1QFY19 quarterly operational update. The key takeaways are
Key details
- Jewellery industry has been under pressure for 5MCY18, indicative from 39% decline in gold imports in volume terms. Titan highlighted that while Akshay tritya day sales for industry were decent, remaining period of the quarter was impacted by weakness in consumer sentiment. This coupled with an unfavourable base (54% yoy growth in division sales in 1QFY18) has resulted in jewellery division sales being muted and lower compared to its internal targets. For the quarter, company added 10 new Tanishq stores resulting in net space addition of 24k sqft.
- Watch division witnessed a strong quarter as focus on new designs and marketing campaigns resulted in a healthy growth in modern retail and e-commerce channel. During the quarter, several new collections were launched. The division added 21 new stores (11 WoT, 7 Fastrack and 3 Helios) resulting in space addition of 14k sqft in 1QFY19.
- Eyewear business saw strong performance led by healthy growth in prescription eyewear business and recovery in sunglasses business. The growth was led by improved assortment at competitive pricing, scale up in innovations and aggressive marketing. The division added 9 stores adding 6k sqft during the quarter.
Our view
While continued healthy growth in watches and recovery in eyewear business is encouraging, Jewellery division performance is likely to be muted, impacted by weakness in consumer demand and unfavorable base. Given the scenario, we are factoring a 1.5% yoy revenue growth for Titan with a 9% yoy PAT growth in Q1FY19. This assumes flat sales for jewellery division with an 80bps yoy EBIT margin improvement aided by improved mix. Given the weaker growth sentiment in Q1FY19, stock could see a correction in the near term which could provide an opportunity to buy. Maintain Outperformer rating on the stock.
Titan is engaged in the watch division where Co. manufactures and sells a variety of watches with varying price range within India and overseas; in the jewelry division where Co. works through Tanishq and Zoya. Tanishq has a range of jewelry studded with diamonds or coloured gems in 18 kt gold, 22 kt pure gold and platinum; and Zoya is a chain of luxury jewelry boutiques; in the eyewear division where Titan Eye+ retails products which showcase contemporary designs, coupled with optical exams with Sankara Nethralaya; and in the precision engineering division, Co. sells its components globally and helps build machinery.
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