Titan misses the growth bus in Q1; analysts remain bullish on prospects

High base of last year, muted bullion and jewellery demand main reasons; analysts remain bullish on prospects

The Titan Company's stock shed about 5.6 per cent in trade on Thursday, after the company indicated jewellery segment sales in the June quarter (after several quarters of strong growth) would be weak and below the company’s own targets.

The management said the sector had gone through a soft patch during the first five months of this calendar year, as seen in a 39 per cent decline of gold import by volume. Demand for both bullion and jewellery has been weak in this period. What will impact growth in the quarter is also the high base of last year in this period, when jewellery sales were up 54 per cent. In addition to strong demand, the year-before quarter had an estimated Rs 2.5 billion of sales which were advanced to the June quarter in anticipation of a higher goods and services tax rate (the levy was to take effect from July 1).

Analysts at CLSA estimate the jewellery segment of Titan to see muted growth of 11 per cent year-on-year in the quarter; its growth in FY18 for the same segment was 27 per cent. Even so, it is expected to have gained market share in the segment. While there are other segments such as watches and eyewear, sales growth in the core jewellery business is critical, as it accounts for 83 per cent of revenue.

Growth in the watches segment has been strong, led by retail demand and e-commerce, with the company posting market share gains. It gets 13 per cent of revenue from this segment and continues to focus on launches and expansion of retail footprint. The eyewear segment also had good sales growth, with innovative launches, competitive prices and higher marketing spending.

Despite the performance in jewellery, analysts at Motilal Oswal Securities believe Titan will deliver healthy sales growth for the rest of the year. The company, with overall sales of Rs 161 billion in FY18, continues to maintain its earlier forecast of Rs 500 billion in consumer sales by 2022-23. This includes growing its jewellery business by two and a half times over the next five years; FY18 revenue was Rs 130 billion.

Triggers for the stock, say analysts at Morgan Stanley, include sustained growth momentum and higher than expected margins in the jewellery business, beside turnaround in the watches segment.

Given the reiteration of its growth outlook and prospects, analysts believe the correction and underperformance of the stock vis-a-vis the broader markets over the past three months is an opportunity to buy it. While the stock is trading at a little over 43 times its FY20 earnings estimate, Motilal Oswal Securities analysts say the share deserves a significant premium to its peers, with the visibility on revenue and earnings growth, highest among peers. Given the target price of upward of Rs 1,000, investors could expect 20 per cent return from the current level.