Titan Company Rating ‘Buy’; start of a stronger growth phase for firm

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Jewellery sales grew c15% y-o-y, sustaining the strong growth trend even after the festive season.

Titan stock has rallied hard in a year of disruption, rising 36% in 2020, and 96% from its March lows. Part of this rally was in the December quarter as Titan managed to deliver a pace of recovery not anticipated by the Street when the COVID-19 crisis began. It also highlighted again the strong execution abilities of Titan and the formidable consumer franchise it has built. But now, investors are concerned whether the liquidity-fuelled rally has led Titan, like other structural winners, into an overbought position. What is the investment case for owning Titan from here?

Why own Titan from here: Titan is now increasingly viewed as a structural winner in the jewellery sector and COVID-19 has further consolidated its competitive position. While the stock rally factored in the festive season rebound (Titan had given earlier guidance), we now believe a strong growth phase has begun and will continue for the next several quarters, continuing to act as a key catalyst.

If one were to ignore this disrupted year, the like-for-like valuation re-rating has been only 10%, and our long-term implied growth framework suggests Titan needs a long-term earnings compounding trajectory of c15% to sustain this multiple; this might look a stretch, but our analysis suggests our assumptions are not unrealistic. Key to stock performance from here, we think, will be sustaining strong growth momentum. We pencil in 32% jewellery growth in FY22e.

Key points from Q3 operating statement: (i) Jewellery sales grew c15% y-o-y, sustaining the strong growth trend even after the festive season. This was driven by a recovery in Metros, wedding demand, coins and studded sales; (ii) Titan added 10 Tanishq stores on a net basis in Q3 (24 in FY21 so far). It also opened its first international store (in Dubai) which received a strong response; (iii) Watches recovered to c88% of prior year level in Q3, and Eyewear is at a c92% recovery level; (iv) Taneira launched a new ‘EIRA collection’ of stitched kurta sets and increased its online presence. Carat lane grew c39% y-o-y.

Retain Buy with new TP of Rs 1,750: Titan’s appeal is its position to capture value from the long-term growth in the jewellery sector (driven by consumer trust, brand, compelling value proposition of pricing, exchange offers, design, wedding focus) by gaining market share consistently. It is also building long-term growth options such as Taneira (ethnic wear), which has the potential to be a large value driver. Post Q3 update, we have raised our long-term growth forecasts and roll forward our model, which results in our new TP of Rs 1,750, from Rs 1,360 before.

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