Titan Shares Jump To A Record As Demand For Gold To Watches Rebounds In Q2

Shares of Titan Co. hit a record after the nation's largest branded jewellery maker's sales rebounded across segments in the second quarter on pent-up demand and improving walk-ins.

Motilal Oswal

• Maintains 'buy' rating with a target price of Rs 2,460 apiece, implying a potential upside of 15%.

• Strong sales growth in the jewellery segment is an outstanding performance. Even on a two-year basis, it has delivered 32% sales compound annual growth rate, which is phenomenal.

• This performance is driven by stable gold prices over the past few months, pent-up demand, continued tailwinds in favour of organized players, robust consumer sentiment and advanced wedding purchases.

• Stability in gold prices bodes well for consumer demand in the near term. With upbeat consumer sentiment, festive demand is likely to remain robust. 

• Margin would be impacted in Q2FY22 due to lower contribution of studded jewellery. However, the strong topline growth would still drive sharp Ebitda growth.

• The structural investment case for Titan remains extremely strong.

Emkay

• Maintains ‘buy’ rating, raises target price from Rs 2,000 to Rs 2,530, implying a potential upside of 17.8%.

• Titan’s Q2 business update highlights a robust recovery and strong performance across divisions, with the jewellery division reporting a two-year CAGR of 32%.

• Network expansion has also been accelerated during the quarter. Full unlocking and the upcoming festive/wedding season are likely to further boost revenues in the coming quarters and may offer more upsides.

• Factoring in the strong growth momentum, we increase our FY23 and FY24 EPS estimates by 8-12%.

• Despite the high plain gold mix, operating margins should reach normalised levels of 11.5%, thanks to strong cost savings seen in Q1 and some operating leverage.

Dolat Analysis

• Maintains ‘buy’ rating.

• Historically, Q2 has been a weak quarter for jewellery sales. However in Q2FY22, higher growth in the jewellery segment was driven by pent-up demand as stores were operational for a very limited time/closed during Q1FY22 ; there was buying ahead of festive season as well.

• The company has gained share from unorganised players during the year. We expect the jewellery division to continue to register a strong performance going ahead, with decline in gold prices and pent-up demand.

• Expects Titan to report around 64% YoY growth (excluding bullion sales) in Q2FY22. We are encouraged by the strong recovery across segments.

• The long-term fundamentals are intact. In the absence of higher investment opportunities in the sector, Titan would continue to command high valuations.

Credit Suisse

• Maintains ‘neutral’ rating, raises target price to Rs 2,150 from Rs 2,000, implying a potential upside of less than 1%.

• Titan remains the best-run organised jewellery player in India and is rapidly gaining share from the unorganized market.

• Key downside risks that may impede achievement of our target price include lack of pick-up in gold demand. Gold has traditionally been seen as one of the main investment options by Indians. If that perception changes, it could be a major blow to Titan. Some of the regional players could become aggressive and decide to pass on the benefit of gold price gain when Titan is hedged, and hence, it risks ceding market share to them.

• Upside risks include gold buying coming back stronger than expected, especially if it can offset the negatives from the adverse mix.

Macquarie Research

• Maintains ‘outperform’ rating, raises target price to Rs 2,650 from Rs 2,500, implying a potential upside of 21%.

• Sharp beat on sales growth across all divisions, and acceleration in store additions are the key takeaways from Titan’s pre-quarterly update.

• Raises FY22/23/24 earnings-per-share estimate by 4% each to factor in these tailwinds.

• Titan, one of our consumer top picks, is better placed than peers to benefit from this clear uptick in demand momentum.

• Catalysts to our target price would be continued strength in sales and strengthening of hallmarking regulations.

• Titan’s pre-2Q update reaffirms our view that demand is on the uptick and is steadily moving towards the growth phase. Titan’s ability to invest in store additions, product design, marketing, etc., places it well ahead of its peers to benefit from this uptick in demand momentum.

• Further, the building blocks are in place through hallmarking norms to drive higher transparency/compliance in the medium term. This should aid market share gains for Titan.