MOSL: TITAN COMPANY (Buy)-Another stellar quarter-Offers the best earnings growth prospect in the sector
Titan company: Another stellar quarter; Offers the best earnings growth prospect in the sector
(ttan IN, Mkt Cap USD12.3b, CMP INR991, TP INR1180, 19% Upside, Buy)
- Titan’s reported robust consolidated revenue growth of 34.6% YoY to IN58.7b as against our est. of INR53.7b. EBITDA grew 40% YoY to INR5.9b as against our est. of INR5.5b and recurring PAT grew 45.8% YoY to INR4.1b against our est. of INR3.7b. Management has provided for an additional amount of INR700m for impairment in value of deposit, in addition to INR290m provided in 2QFY19 for its investment in IL&FS ICD (total investment at INR1,450m). Adjusting for the same, EBITDA grew 56.5%.
- segmental performance: (a) Jewelry sales grew 37% YoY to INR50b, with segmental margins expanding 290bp YoY to 12.9%. (b) Sales of Watches rose 18.2% YoY to INR6.4b, with EBIT margin contracting 590bp YoY to 6.8%.
- Concall highlights: (1) Management called out that 4QFY19 is also likely to witness >20% growth in jewelry (17-18% jewelry growth seen Jan’18). (2) SSSG contribution to jewelry sales growth is likely to be in 75-80% range.
- 9MFY19 performance: Sales, EBITDA and Adj. PAT grew 24%, 27.6% and 28.8%, respectively. Jewelry sales were up 24% YoY to INR122.8b.
- Valuation view: After another quarter of significant beat to our forecast, we have raised our EPS by 2.4%/3.2% for FY19/FY20. Growth prospects for the Jewelry business continue to be robust, now Watches and even Eyewear have started contributing to growth. High valuations are fully justified for a business that has perhaps the best topline growth visibility in the large cap FMCG/Retail space (20% CAGR growth in jewelry business, the largest segment, in the next five years). In addition, operating leverage arising from rising share of SSSG in Jewelry sales growth and recovery in margins in the Watch business should lead to healthy EBITDA margin expansion, as well as fuel the best-of-breed and sustained earnings growth performance. Maintain Buy, with a target price of INR1,180 (48x December 2020 EPS, ~10% premium to 3-year average P/E).
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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