MOSL: TITAN COMPANY (Buy)-Growth prospects remain bright-Earnings growth visibility remains best of breed
Titan Company: Growth prospects remain bright; Earnings growth visibility remains best of breed
(TTAN IN, Mkt Cap USD14.4b, CMP INR1132, TP INR1310, 16% Upside, Buy)
We attended Titan’s (TTAN) Annual Investor Forum 2019; key takeaways:
- TTAN’s jewelry segment growth target for FY20 is ~22%, and if achieved, it will be the third consecutive year of faster than targeted growth. At end-FY17, TTAN had guided for 20% CAGR over five years.
- Of the 22% targeted jewelry segment growth in FY20, 14% should be supported by SSSG. Therefore, after FY18 (16% SSSG of the 25% growth) and FY19 (16% SSSG of 22% growth), FY20 will be the third consecutive year when SSSG will contribute over 60% to sales growth. This augurs well for operating margins.
- However, due to unusually high number of store openings (71 likely to be opened in FY20) and FY20 target of 35% increase in exchange jewelry sales, we believe operating margin growth for FY20 will not be as high as the preceding years. Adjusted for one-off IL&FS impact (now written off completely), EBITDA margin expansion is likely to come in at only 10bp in FY20.
- But, healthy EBITDA margin growth should resume in FY21. Also, we believe, management has done a commendable job in not letting inventory turns get affected by the rapid sales growth and recent changes in the business mix. In fact, overall inventory days have actually declined by nine days between FY17-19.
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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