Q3FY24 Review: Titan: Ebitda miss driven by watches and eyewear

2 Feb 2024 , 10:45 AM

Titan’s jewellery margins at 12.2% came in ~80 bps lower yoy on account of lower studded share, increased marketing intensity and value pass through to consumers. While ex bullion jewellery sales growth was 23%, the consumer growth in India was 17% (400 bps was pipeline impact and 200 bps international business ramp up) which analysts of IIFL Capital Services believe is a more reasonable growth expectation for future. Eyewear and watches business disappointed, and have proven to be quite unpredictable quarter to quarter. Accelerated shift to organised from unorganised is offsetting the increase in competitive intensity from other national and regional chains, and analysts of IIFL Capital Services believe that Titan will be able to maintain high teens growth for the medium term. However, valuations at nearly 60x FY26 do not leave much room for upside. Maintain ADD, price target Rs3,850. 

Jewellery in-line; watches and eyewear a drag: 

Titan posted strong revenue growth of 23% (ex-bullion) YoY in the Jewellery business. Jewellery margins came in at 12.2% in-line with analysts of IIFL Capital Services estimate. Overall, revenue grew 20% YoY, while Ebitda came in 7.8% below their expectation driven by a large miss in watches and eyewear Ebit margins. Watches and eyewear Ebit declined 38%/56% YoY primarily due to increased marketing spend in watches and demand headwind in eyewear. 

High teens growth to continue: 

While regional chains are expanding, their growth is coming at the cost of unorganised jewellers and Titan is not losing market share. However, despite high growth, margins are under pressure as the company increases marketing spend and passes on value to consumers to compete with the emerging competition. International business is ramping up well and adding ~200bps to overall growth something which could continue for the next few years. Analysts of IIFL Capital Services believe that a high teens growth with stable margins is a reasonable assumption for Titan going ahead. 

Valuation is not cheap: 

Analysts of IIFL Capital Services continue to like Titan, especially in light of lack of exciting growth in the consumer sector. However, growth expectations are elevated due to recent performance, and multiples too are at the higher end of historical range (73x/62x FY25/26 PE). They believe that the superior growth will help keep multiples elevated but does not factor in the risk of a few bad quarters. Analysts of IIFL Capital Services maintain ADD, price target ₹3850.