MOSL: TITAN COMPANY (Buy)-Healthy jewellery retail growth led by festive demand

​Titan Company: Healthy jewellery retail growth led by festive demand

(TTAN IN, Mkt Cap USD11.5b, CMP INR845, TP INR975, 15% Upside, Buy)

• Titan (TTAN) has released its pre-quarterly update for 3QFY18. Key highlights:
• Festive season sales were reportedly healthy, despite a high base. Retail growth in 3QFY18 was in line with management’s expectations, despite the advancement of Dussehra sales to 2QFY18. TTAN also continued to gain market share.
• Watches and Prescription Eyewear businesses also saw good growth in the quarter.
• We maintain our Buy rating with a revised target price of INR975 (valued at 49x December 2019E EPS, a 20% premium to three-year average multiple because of the extraordinarily strong earnings growth prospects – 36% EPS CAGR over FY17-20E).

Jewelry: Festive sales healthy, continues gaining market share

• The Jewellery division witnessed a good festive season (21st Sept'17 to 31st Oct'17), with retail sales growing in double-digits. If not for Prevention of Money Laundering Act (PMLA), then growth would have been even better, despite a high base (50% sales growth in the festive season last year). Suspension of PMLA in early October 2017, however, helped the company boost sales further over the rest of the festive season this year.
  
• We note that some part of festive sales was already reflected in 2QFY18 (Dussehra this year was in 2QFY18, while traditionally Dussehra and Diwali fall entirely in 3QFY18). TTAN had already mentioned in its 2QFY18 earnings call that festive season sales were up 16-17% YoY. For 3QFY18 too, TTAN mentioned that retail growth was healthy and met management's internal expectations. We, however, note that primary growth for 3QFY18 was lower due to upstocking by franchisees in 2QFY18 (to the extent of INR2.5b), given the early onset of festive season and also as PMLA was effective last quarter.
  
• Market share gain for the division continued in 3QFY18 as well.