Shares of Titan Co. gained on Friday as analysts remained optimistic about jewellery demand going back to pre-Covid levels, giving way to upselling opportunities.
Most analysts maintained 'buy' ratings on the stock despite third-quarter profit decline and missing analysts' estimates.
Consolidated net profit of the country's largest branded jewellery maker fell 10% over the previous year to Rs 904 crore in the quarter ended December, according to its exchange filing. That compares with the Rs 1,005.52-crore consensus estimate of analysts tracked by Bloomberg.
However, sales of the company's mainstay jewellery segment, which accounts for 89.9% of total revenue, rose 15.3% year-on-year to Rs 10,446 crore.
The Tata Group firm added 111 stores across its consumer businesses to take the total count to 2,362 as of Dec. 31.
Titan Q3 Highlights (YoY)
Operating profit was down 7% to Rs 1,347 crore, compared to an estimate of Rs 1,485.45 crore.
Margin stood at 11.6% against 14.4% on higher expenses. Analysts had forecast it at 13.4%.
Expenses jumped 19.5% to Rs 10,454 crore.
"Our optimism stays intact," said ICICI Securities in a Feb. 3 note. "This is one company with a high ability to convert opportunity into earnings."
Similarly, Kotak Institutional Equities too noted that, "the demand scenario for jewellery in January 2023 has been very good despite gold prices increasing, and studded jewellery is picking up."
Shares of the company 4.91% to Rs 2,421.5 apiece as of 11.50 a.m., while the benchmark Nifty 50 gained 0.37%. The total traded volume so far in the day was 4.9 times its 30-day average trading volume.
Out of the 33 analysts tracking the company, 27 maintain a 'buy' rating, 3 suggest 'hold' and 3 recommend a 'sell' on the stock, according to Bloomberg data. The 12-month consensus price target implies a return potential of 18.6%.
Here's what analysts make of the quarterly results:
ICICI Securities:
Maintain an "add" rating on the stock with a target price of Rs 2,600.
New buyer contribution was strong at 49% (vs. 48% in Q2 FY23), as net sales were up 12% YoY.
Enrollment in Golden Harvest has remained strong (it has reached pre-Covid levels).
Secondary sales rose 15% YoY, driven by strong festive demand (reorder benefits are expected to flow through 4QFY23).
Despite the rise in gold prices from December-January, strong customer demand (at 20%+) on January is encouraging.
Increase our FY23–24E earnings estimates by 1-3% and expect discounts to remain elevated, especially as Titan's competition is not fully hedged and sitting on inventory gains that it can partially pass on to consumers.
Kotak Institutional Equities:
Maintained "add" on the stock with a revised fair value of Rs 2,700 from Rs 2,900.
In the third quarter of FY23, majority of growth was driven by buyer growth over ticket size growth.
Titan's 3QFY23 topline was as per the quarter-end sales update, but the profitability was a tad below expectations.
Ebitda margin of 13% was impacted by higher promotions and marketing spends, given the competitive pressure.
Expect discounts to stay high, especially since Titan's competitors aren't fully hedged and are sitting on inventory gains that they can pass on to some customers.
Trimmed their jewelry growth forecast as they factor in the discretionary slowdown (not seen by Titan so far) and some impact of the sharp rise in gold prices.
Prabhudas Lilladher:
Upgraded the stock rating to "buy" and increased target price to Rs 2,905.
Strong underlying demand trends have been noticed across divisions in January' 23 and 17% correction from the peak.
Jewellery business outlook remains robust with Golden Harvest scheme enrollments & gold exchange back to pre covid levels.
Jewellery margins to normalize at 12-13% inventory gains taper off.
Competitive intensity has increased in third quarter and will continue into the fourth quarter.
Eyewear and CaratLane on strong path to profitability in 9MFY23
Philips Capital:
Maintained a 'buy' rating on the stock with target price of Rs 2,700 and sees an upside of 16%.
Long term drivers remain intact citing increase in consumer shift to organised jewellery.
Increasing traction on the revised gold exchange programme for Titan's Golden Harvest Scheme is a good sign.
Introduction of regulatory measures to curb gold imports could be near term challenge to earnings.
Increase in competitive intensity, higher promotional offers and negative operating leverage weighed on margins
Contribution from Gold Harvest have reached pre-covid levels and GHS enrolments saw double digit growth during 3QFY23.
Has been able to manage profitability via maintaining appropriate balance between product mix and pricing and now it is highly competitive as far as gold rate is concerned.
Motilal Oswal:
Maintained "buy" rating on the stock with a target price of Rs 3,070 and upside potential of 33%.
Base quarter Ebitda margin was the highest since 2QFY06 and hence, there was an unusually unfavorable base, which will not be the case going forward though.
The three-year consolidated sales/Ebitda/profit after tax/ compound annual growth rateremained robust at over 20% each in 3QFY23.
Titan Co. has the best-in-class track record, better nearterm growth visibility than peers and the longer-term growth opportunity is also the best of breed, thus deserving high multiples.
The company has been able to surmount two of the challenges that were highlighted in their detailed note in Oct'22, viz., a) exceptionally high wedding jewellery sales in 3QFY21 and 3QFY22 and b) any potential near-term impact of gold price increase.
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