MOSL: TITAN COMPANY (Buy)-Activations and revised exchange policy add luster to Jewellery

Titan Company: Activations and revised exchange policy add luster to Jewellery

(TTAN IN, Mkt Cap USD12.8b, CMP INR939, TP INR1090, 16% Upside, Buy)

• 4QFY18 turned out to be a good quarter for the Jewellery division, with retail growth coming in at mid-teens, despite no new collection launch. Growth was driven by successful diamond jewellery activation and the revised gold exchange policy.
• Watches performed strongly in the quarter, aided by the multi-brand and e-com platforms.
• Prescription Eyewear, too, sustained its growth momentum, while Sunglasses business continued to suffer.
• We maintain our Buy rating on TTAN, with a revised target price of INR1,090 (valued at 55x March 2020E EPS, a 33% premium to the three-year average multiple, because of the strong earnings growth prospects – 26% EPS CAGR over FY18-20).

 Jewelry – healthy retail growth despite no new collection launch

• Jewellery segment performed well in 4QFY18, with retail growth coming in at mid-teens, despite no new collection launch. Notably, the business delivered growth off a high base (55% retail growth in the year-ago period), led by successful diamond jewellery activation and the revised gold exchange policy. The company, in its 3QFY18 quarterly earnings call, had mentioned that the Jewellery business was able to maintain the previous quarter’s momentum into 4QFY18. January sales, too, were strong, with ~22% growth.
• In FY18, the company has added 46 Tanishq stores, including conversion of 22 Gold Plus stores (67k sq. ft. of retail space added).
• TTAN’s digital omni channel jewellery retailing subsidiary Caratlane has also delivered good sales and profitability in the financial year. There are 36 Caratlane stores as of end-FY18, with 24 stores being added in this fiscal itself.