Titan Company
BSE SENSEX
35,557
S&P CNX
10,807
14 May 2018
Update
| Sector:
Retail
CMP: INR921
TP: INR1,125(+22%)
Buy
A gem that’s getting even more lustrous
High earnings growth with strong visibility deserves premium valuations
We attended Titan’s (TTAN) Annual Investor Forum 2018. Key takeaways:
Jewelry growth prospects improving
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INR m)
Free float (%)
TTAN IN
887.8
1006 / 460
-11/11/68
817.7
12.6
1662.0
47.1
Financials Snapshot (INR b)
Y/E Mar
2018 2019E 2020E
Sales
161.2 197.3 239.0
EBITDA
16.4
21.0
26.1
Adj. PAT
11.0
14.4
18.2
Adj. EPS (INR)
12.6
16.2
20.5
EPS Gr. (%)
39.5
28.8
26.1
BV/Sh.(INR)
57.3
64.0
67.1
RoE (%)
23.9
26.7
31.2
RoCE (%)
24.6
27.3
31.9
P/E (x)
73.1
56.8
45.0
P/BV (x)
16.1
14.4
13.7
Shareholding pattern (%)
As On
Mar-18 Dec-17 Mar-17
52.9
52.9
53.1
Promoter
6.3
5.9
5.4
DII
20.7
21.3
21.1
FII
20.1
20.0
20.4
Others
FII Includes depository receipts
Stock Performance (1-year)
Titan Company
Sensex - Rebased
1,050
950
850
750
650
550
450
Management remained confident about the Jewelry segment growth prospects
and reiterated its recently revised growth guidance (expects 2.5x growth – 20%
CAGR – in the segment over FY18-23, as against the previous guidance of 2.5x
growth over FY17-22). The company confirmed the 25% Jewelry segment
growth target for FY19, exhibiting confidence about growing rapidly despite
the previous year’s strong performance (+25% in FY18). Jewelry growth is likely
to be muted this quarter because of an extremely high base (50%+ growth in
1QFY18), but the rest of the year is likely to be good enough to compensate for
that. Management also cited that the competitive advantage versus peers is
getting bigger over the past few quarters.
Management quantified its five key pillars of growth for the first time.
a)
Wedding jewelry
sales proportion is likely to increase from 35% of jewelry
sales in FY18 to 50% by FY23.
b)
High-value diamond jewelry
sales proportion is likely to increase from 30%
of diamond jewelry sales in FY18 to 50% in FY23. In these premium
categories, the company is targeting customers with annual income of
INR1-5m, a segment that the Central Board of Direct Taxes expects to grow
at a 23% CAGR over the next five years.
c)
Golden Harvest:
It continues to be one of the key pillars.
d)
Low-share markets:
TTAN has identified 15-20 cities in the country where
it has a less than national average market share. Market share in these 17
cities is expected to increase from ~4% to ~8% by FY23.
e)
Middle India focus:
From 250 stores in 150 towns in FY18, TTAN is likely to
have 400 stores in 250 towns by FY23, which is quite remarkable
expansion, in our view.
f)
Exchange sales:
Management also added a sixth pillar of growth, i.e., sale
of jewelry to customers coming for exchange of old jewelry. The
contribution of this segment has increased from 20% to 40% of sales over
the past 18 months, and it is likely to reach 50% by FY23. Higher proportion
of exchange sales also reduces the vulnerability to import curbs on gold
(similar to FY13). Such curbs are possible if the current account deficit
worsens drastically from the current impressively low levels.
In addition, new products are playing a big part in driving growth. Proportion of
new products has increased consistently every year to 30% of sales as of FY18,
and is likely to reach ~50% by FY23. Of 20% revenue CAGR over FY18-23E, SSSG
is likely to contribute 12-13%, which augurs well for profitability.
Krishnan Sambamoorthy – Research Analyst
(Krishnan.Sambamoorthy@motilaloswal.com); +91 22 3027 8029
Vishal Punmiya – Research Analyst
(Vishal.Punmiya@motilaloswal.com); +91 22 3980 4261
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.