Titan: Strong year - Strong outlook

13 Jul 2023 , 10:55 AM

Recommendation: Buy; Target price: Rs 3325

Titan had a strong FY23 marked by record retail area expansion, favourable festive season, resurgence of weddings etc. Growth was broad based across divisions with Jewellery/ Watches/Eyecare growing by 37%/43%/33%. There is enough headroom for further growth given low market share for Titan, fast pace formalisation in the categories and International scale-up. Analysts of IIFL Capital Services forecast ~18% FY24- 26 sales Cagr for jewellery division on rapid store addition, normalisation of volume per store and gold price inflation. The stock is relatively best placed among discretionary pack and we maintain BUY, TP of Rs.3,325.

Jewellery leads from front in FY23: 

Jewellery division reported strong revenue growth of 37% YoY driven by 34 new Tanishq stores (~9% growth in avg stores), SSSG of 32% and market share gains. However, removing the inter-company sales to two international subsidiaries of North America and Middle East, Jewellery sales growth was lower at 34.6% YoY. Ebit margin ex. one offs stood at 13% and was at the top end of margin guidance on account of higher operating leverage and analysts of IIFL Capital Services expect it to remain elevated in FY24. CaratLane had a strong year again with revenue growing by 71% YoY and Ebitda margin expanding by 290bps to 9.7%.

FCF generation and return profile: 

Working capital days in FY23 reduced to 73 from 83 in FY22 due to lower inventory days which saw a spike in FY22 due to up stocking prior to Akshaya Tritya. This resulted in higher CFO generation leading to positive FCFF of Rs15bn compared to negative Rs13bn in FY22. ROIC expanded marginally to 39.2% due to higher profitability. Working capital for CaratLane increased to 122 days due to lower payables and gold on loan. It’s ROIC expanded to 19.6% from 17% in FY22 due to higher profitability.

Multiple growth levers: 

Titan has a jewellery market share of 7% which leaves headroom to grow 15-17% for the next decade in analysts of IIFL Capital Services view. International business with 7 stores currently and is expected to ramp up to 25 stored by FY24 contributing ~300bps to sales growth. Although the stock trading at 60x FY25 EPS is expensive, good visibility in the near and medium term will keep stock buoyant.