Titan shines as focus shifts from recovery to demand-led growth

Healthy demand for wedding jewellery, market share gains boosts share price to all-time high

Shares of Titan Company have rallied more than 30 per cent the past three months, with the Street factoring in revival of growth aided by healthy demand, market share gains and the company’s efforts on cost savings.

Last month, the Tata group firm highlighted that its jewellery business had grown by 15 per cent during the 30-day festive period, as compared to internal targets of a flattish year-on-year growth during the same period. This growth momentum is seen continuing into the wedding season, said analysts at Motilal Oswal Securities (MOSL) in a December 17 report based on their interaction with the company management.

“Due to the lack of spending on travel and restricted guests lists, the wedding budget is being used for the purchase of jewellery and apparels,” said the brokerage firm in a recent report. Sharp drop in international and domestic holidays coupled with healthy safe haven demand is seen boosting gold sales, the report added.

Going forward, analysts estimate the company to leverage its strong brand equity and an omni channel presence to address a huge market which is still dominated by unorganised sector. The company’s growth strategy focused on store expansion, wedding jewellery segment and middle India has enabled it grow faster than its peers in the organised space, and garner higher market share.

Titan has grown at a compounded annual growth rate (CAGR) of 22 per cent over the last three years as against its peers growing at just 10 per cent. And, despite being the largest organised player, the company still holds less than 10 per cent share in the overall domestic jewellery market. However, recent struggles for the unorganised and other organised peers owing to the Covid-19 crisis strengthens the case for Titan to gain market share, say analysts.

 

Moreover, cost savings have been an area of focus for the company even before the pandemic. The company has been aggressive in savings across most areas such as discount to customers, material costs and, subcontracting fees among others. Older and non-performing businesses such as Favre Leuba are seeing write-offs and/or no incremental investments, says MOSL.

“While ad spends may increase, cost savings across verticals seem impressive and are likely to offer sustainable gains. Our forecasts factor in margin expansion of 100 basis points over FY22-23 to 12.7 per cent versus FY20,” said analysts at Emkay Global in a recent report. These measures are seen boosting the company's return ratios, which remained stable around 20 per cent for the past few years with the exception of the ongoing financial year.

CLSA estimates the company’s EPS to more than double next year before normalising in FY23.

Despite operations returning to near normalcy, the management continues to remain cautiously optimistic and would await a couple of months more as demand recovers fully for the industry.

On the flip side, even as analysts remain positive of turnaround for Caratlane (online jewellery business) and its eyewear business, any potential delay could be viewed negatively by investors. Above all, the biggest concern remains the eye-watering valuations. On a 12-month forward basis, the stock trades at a price-to-earnings multiple of 83.4 times as compared to its 5-year average of 67 times.

Shares of Titan Company have gained more than 110 per cent from their March lows to hit an all time high of Rs 1,525.30 apiece. The 12-month consensus target price of Rs 1,235 per share indicates a negative return potential, according to data from Bloomberg. So, long-term investors may want to await a healthy correction before considering the stock.