Titan Q2 Review: Shares Fall As Analysts See Current Valuation A Concern

Shares of Titan Co. fell after analysts raised concerns of its current rich valuation, even as its second-quarter profit beat estimates.

Most brokerages expect the country's largest branded jewellery maker's sales to recover further, benefiting from a pent-up demand for wedding jewellery.

That comes after the Titan's net profit rose 30% over the previous year to Rs 831 crore in the quarter ended September, according to its exchange filing. That compares with the Rs 732.75-crore consensus estimate of analysts tracked by Bloomberg.

Revenue of the owner of Tanishq brand and namesake watches rose 22% over the previous year to Rs 9,163 crore—against the Rs 8,580.9 crore forecast.

Sequentially, however, revenues dropped 3% as demand slowed on the back of rise in gold prices.

Titan Co. Q2 Highlights (YoY)

• Operating profit rose 29% to Rs 1,247 crore compared to an estimate of Rs 1,106.5 crore.

• Margins stood at 13.6% against 12.9%. Analysts had pegged it at 12.9%.

• Cost of materials consumed rose 50.9% to Rs 7,479 crore.

• Advertising expenses shot up 66% to Rs 224 crore.

All the parameters beat the consensus estimate of analysts tracked by Bloomberg. Sales of its mainstay jewellery segment, that accounts for 87% of total revenue, rose 21.7%. Watches and wearables revenue also jumped, albeit on a low base, driven by premium brands.

Only eyewear business reported sluggish sales. "Eyecare is a need-based category which benefitted sales during Covid, but now that trend is reversing as discretionary segments are seeing a faster growth," according to the company.

The Tata group company has clocked a 17-19% growth in major segments during the festive period, i.e., till October.

Shares of Titan were trading 1.18% down to Rs 2,736.95 apiece as of 11:35 a.m., while the benchmark Nifty 50 gained 0.16% on the NSE.

Of the 32 analysts tracking the company, 24 have a ‘buy' rating, five suggest a ‘hold' and three recommend a ‘sell', according to Bloomberg data. The average of the 12-month consensus price target implies a upside of 9.1%.

• Maintains 'buy' rating on the stock with a target price of Rs 3,210 per share, implying a potential upside of 16%.

• The three-year jewellery sales CAGR of 22-23% in recent quarters is extremely remarkable.

• Titan has a strong runway for growth, given its market share of sub-10% in jewellery and continued struggles faced by its unorganised and organized peers.

• Its medium-to-long-term earnings growth visibility is nonpareil.

• Despite the volatility in gold prices and Covid-led disruptions, earnings CAGR has been stellar at 24% for the past five-years ending FY22. The brokerage expects this trend to continue, with a 31% earnings CAGR over FY22-24.

• The stock's near-term multiples appear expensive, but its long runway for profitable growth warrants premium multiples.

• Retains 'hold' with a revised target price of Rs 2,550 apiece, implying a potential downside of 8%.

• Structural story remains strong, but the brokerage retains 'hold' on rich valuation.

• Raises FY23-25 earnings by 2-8%.

• Positives include buoyant gold prices, share gains and higher wedding budgets for jewellery are some of the positive catalysts.

• Growth in jewellery business continued to be driven by buyer growth (10% year-on-year), with ticket sizes seeing a 5% YoY growth. Retail area also grew 14% year-on-year, supporting buyer growth.

• Maintains 'add' with a target price of Rs 2950 per share, implying a potential upside of 6.5%.

• The brokerage continues to like Titan's good traction in new markets (new cities, low share markets and in parts of South India).

• While on an adjusted basis, the margin performance may not look attractive, the same needs to be seen in the context of good consumer recruits, who typically buy staples jewellery first, and store expansion continues to be healthy. It has also increased investments in the watches and eyewear segments.

• Jewellery Hallmarking will likely create a level-playing field, driving further formalisation.

• This is one company where the capabilities to translate the opportunity to earnings is high, in our view.

• Key downside risks are irrational competitive environment and sustained weakness or worsening of macro environment leading to demand slowdown.

• Maintains 'buy' rating with a target price of Rs 3000 per share, implying a potential upside of 8.3%.

• Share of new buyers increased, to 46% of total buyers in Q2 vs. 43% in Q1, pointing to market-share gains.

• Titan has outperformed Nifty-50 index by 10-15 pps over the last 6M/12M. However, it expects the stock to be range bound in the near term given a moderate upside on its revised target price.

• The brokerage maintains its rating on Titan over a longer investment horizon, given continued potential for consistent earnings compounding, based on its modest market shares in several large and growing product categories.

• The target price is based on a higher multiple of 53x (vs. 50x earlier). Upgrade in the valuation multiple is driven by 50bps increase in the medium-term growth expectations, on higher growth projection in Taneira/ Handbags/International, as also higher long term sustainable RoE.

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