MOSL: TITAN COMPANY: Jewelry demand robust; margin outlook improving
. TITAN COMPANY: Jewelry demand robust; margin outlook improving
(TTAN IN, Mkt Cap USD27.3b, CMP INR2433, TP INR2670, 10% Upside, Buy)
- TTAN's 1QFY23 result, though strong (three-year jewelry sales CAGR of 23% - the best among Consumer companies), was below our estimates. The management said gold prices have remained stable and that there has been no adverse impact on Jewelry demand so far. This was contrary to our fears that the hike in gold import duty on 1st Jul'22 will increase domestic gold prices and therefore affect demand. As a result, there has only been a minor correction in our FY23 operating profit forecast, despite the miss in 1QFY23 v/s our estimate.
- While the management expects margin in the Jewelry business to remain in the 12-13% range, it stated that the healthy margin improvement in Watches and Wearables (13% EBIT margin) and Eye Care (~15% EBIT margin) is likely to sustain. This implies that these segments will no longer remain margin dilutive as feared.
- TTAN can achieve its ambitious growth target (of 2.5x) for the Jewelry business (89% of FY22 sales) over the next five years, as highlighted in our after the analyst meet in May'22, having already delivered a similar performance in the preceding five years. We maintain our Buy rating.
Strong operating performance, but earnings below our estimate
- Consolidated revenue grew 172% YoY to INR94.4b (est. INR104.2b).
- EBITDA stood at INR12b (est. INR14b) in 1QFY23 from INR1.4b in 1QFY22.
- PBT stood at INR10.7b (est. INR13b) in 1QFY23 from INR0.4b in 1QFY22.
- Recurring PAT came in at INR7.9b (est. INR9.7b) in 1QFY23 from INR0.2b in 1QFY22.
- Consolidated gross margin rose 310bp YoY to 25.5% (est. 27%).
- As a percentage of sales, lower staff costs/other expenses (down 490bp/160bp YoY), but higher ad spends (up 90bp YoY) led to an 870bp expansion in EBITDA margin to 12.7% (est. 13.5%) in 1QFY23.
Adjusted segmental performance: Jewelry sales grew 173.8% YoY to INR83.5b. Segment margin rose 610bp YoY to 12.6%. Sales of Watches grew 168.3% YoY to INR7.9b, with an EBIT margin of 12.5% in 1QFY23
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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