Q4FY23 Review: Titan Company: Demand revival towards end of April

4 May 2023 , 11:06 AM

Titan Company (Titan) has had a stellar year, growing 21% on 4-year CAGR basis and clocking high EBIT margin in Jewellery of 13.7% ex-bullion driven by diamond inventory gains. FY24, on this base would be relatively subdued (14% EPS growth) but the overall growth story of high-teens growth in the medium term is intact, driven by ~10% retail area addition and strong SSSG, driven by increase in bills cut. While valuation is not cheap at 52x FY25 EPS, good growth visibility in the near and medium term will keep the stock buoyant, believe analysts at IIFL Capital Services.

Q4 slightly below estimate

Sales grew 25.5% YoY (ex-bullion) as per pre-quarterly release and jewellery EBIT margin at 13.2% was 30 bps above IIFL estimate. However, other segments’ profitability was below estimate, driven by one off costs resulting in overall EBIT growth of 37%; below estimate. Jewellery SSSG was 19%, driven by increase in bills cut by ~10-11% and ~8% increase in bill value. The company mentioned that some rejig in franchisee commission is operational and not strategic; will not lead to material profit margin expansion.

Growth outlook good

FY24 may witness margin contraction due to high base in FY23, but top-line growth at high teens should continue in the medium term, on customer acquisition and space addition. Post Akshaya Tritiya, sales traction has improved giving comfort on near term sales trajectory. International business is ramping up well, with 7 stores currently, ramping up to 25 in 1 year which could add ~300 bps to sales growth. Moreover, analysts at IIFL Capital Services believe that operating leverage should keep jewellery EBIT margin towards the top end of the margin band of 13%.

Analysts at IIFL Capital Services have kept their estimates largely unchanged. The company has a jewellery market share of 7%, which leaves headroom to grow 15-17% for the next decade, they believe. New segments, form 9% of sales but are currently loss making – can be a driver of profits over medium-to-long term. The stock is trading at 52x FY25 EPS but visibility of good growth will support the stock. As gold price stabilizes, so will competitive intensity, believe analysts at IIFL Capital Services.