Titan Company Research Report By ICICI-Direct

Multiple levers in place to drive sales growth

The management, in its latest BSE filings, has said that the company has undergone a vision exercise to rejig its revenues for FY23E. The management had earlier guided to grow its jewellery revenues at a compounding rate of 20% till FY22 (2.5x revenues of FY17).

The same growth phase has now been extended to FY23. Given the robust performance in 9MFY18 (24% and 32% revenue and EBITDA growth, respectively), the management remains upbeat on the growth outlook with the aim to be a Rs 50000 crore company by FY23E (revenues in terms of MRP).

Titan aspires to touch 50 million customers across all its segments. The jewellery division is expected to continue be the largest revenue contributor with an MRP target revenue of | 40000 crore (given ~20% markdown, the jewellery turnover is expected to reach Rs 32000 crore). Tanishq’s aggressive foray in the wedding space and diamond studded jewellery are key growth levers.

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Market share gains to continue for jewellery segment

In its quarterly preview for Q4FY18, the management highlighted that FY18 was a satisfactory year for the company across all its divisions. Recent industry challenges (loan related scam) have led to serious working capital issues for jewellery players in India.

However, given Titan’s robust balance sheet, the impact of the same is minimal. For Q4FY18, the jewellery division witnessed healthy retail growth (in the mid-teens) on the back of successful diamond jewellery activation and a more customer friendly revised gold exchange policy.

Titan’s omnichannel retailer, Caratlane, also reported healthy sales and gross margins for FY18. The watches division reported a strong quarter on the back of number of new launches in Q4FY18. The prescription eyewear division reported decent sales growth for FY18 but the sunglasses business continued to face headwinds owing to GST related issues.

Financial outperformance to sustain over longer horizon; maintain BUY

Titan has a healthy balance sheet with virtually debt free status, robust cash flow from operations and strong return ratios (25% RoCE). On the P&L front, robust topline growth has led to significant margin expansion, with the company clocking double digit EBITDA margins in 9MFY18 (10.1%).

According to industry estimates, the domestic jewellery industry is pegged at Rs 250000 crore, of which Tanishq’s penetration is still at a nascent stage with a share of ~5%. This provides an immense opportunity for Titan to enhance its market share, going forward.

Recent regulatory changes such as gold hallmarking and GST have turned out to be highly favourable for organised players like Titan, leading to market share gains from unorganised players. Furthermore, capitalising on larger opportunities like the wedding space and high value diamond studded jewellery has resulted in new customer addition and expansion of average ticket size.

High asset turnover, coupled with positive operating leverage are expected to translate into 34% RoCE by FY20E from current 25%. We believe Titan’s growth story will remain multi-pronged and drawn over a longer time frame.

Consequently, we shift to a DCF based valuation to arrive at a target price of Rs 1090 with a BUY recommendation on the stock. On a DCF basis, we assume revenue CAGR of 20% over FY17-23E and 11% over FY24E-30E with 10.8% WACC and 4% terminal growth rate.