At current valuations, the stock is a good play on the growing demand for aspirational products.
So sharp has been the price correction in the market that what used to be forward multiples for stocks have now become trailing multiples ! After trading at very high multiples of 30 times and more in the past, jewellery and watch maker Titan is now valued at a more sober 17 times estimated FY09 earnings and 14 times estimated FY10 earnings. Between mid-September and now, the stock has lost nearly 30 per cent and is trading at Rs 830.
That makes the stock a far more attractive play on the growing demand for high-end consumer products in the country, driven by higher disposable incomes and more working women. In addition, after a relatively poor performance in the June 2008 quarter, the Bangalore-headquartered firm has done well in the September 2008 quarter with all businesses clocking double digit growth thereby pushing up net sales by 53 per cent.
The jewellery segment in particular, sparkled with a 71 per cent rise in the top line (even if was aided by higher prices of gold). What’s more the firm’s profitability improved by about 40 basis points to 11.6 per cent, even if it was partly because of a control on costs.
Gold prices are currently ruling at around $732 per ounce, off their peaks of over $1000 per ounce hit earlier in the year and that should help spur demand for jewellery. With five brands of watches across price points and two strong jewellery brands and a foray into eyewear, Titan is well-positioned to capture the rising spends on aspirational products.
It recently launched a collection of watches aimed at the youth, though the focus on high-end watches continues. The company today boasts a chain of 430 outlets — across products —including stores such as World of Titan, Tanishq and Gold Plus, which gives the retailer not only tremendous reach but an early mover advantage.
The growth in revenues will probably taper off in the current year to around 37 per cent from 43 per cent in FY08---Titan is expected to end FY09 with revenues of close to Rs 4,100 crore, over Rs 2,997 crore last year. However, earnings could grow by over 40 per cent.
