Titan stock shines after Q2 update, addition of 105 stores in the quarter

The “pre-quarterly update” by Titan has been favourably received by the market. The company says standalone sales grew 18 per cent year-on-year (YoY) in Q2, 2022-23 and it also added 105 new stores in the quarter. Management guidance is that consumer sentiment appears positive going into the festive season.

All this seems like good news and given the reliable quality of management it is possible to make reasonably accurate estimates of revenue, margins, etc. However, many investors have already started buying the stock in anticipation of results, which means any disappointment with actual results could create a downside risk.

The Jewellery division grew 18 per cent YoY despite a high base. In the segment, Gold (plain) had low double-digit growth, but sales of studded gold were higher. The product mix improved YoY, but is still below pre-pandemic levels. New stores (net) included eight domestic stores in Tanishq, 16 in Mia by Tanishq, and one in Zoya. The watches and wearables division grew 20 per cent YoY, clocking its highest ever quarterly revenue. New launches included Titan and Fastrack smart watches, with a Bluetooth calling feature. New stores included seven of Titan World, 14 of Helios, and two Fastrack. The Titan Eye+ grew in healthy double-digits YoY. Fragrances & Fashion Accessories grew 34 per cent YoY.

Among subsidiaries, Titan Engineering & Automation (a wholly-owned subsidiary) grew 139 per cent YoY, with the Automation Solutions division growing 240 per cent YoY and the Aerospace and Defence division growing 66 per cent. CaratLane (72.3 per cent owned) grew 56 per cent YoY, led by promotions around Raksha Bandhan.

The EPS growth visibility remains strong. The history shows Titan has compounded earnings by roughly 20 per cent over a long period. The update indicates a likely consolidated revenue CAGR at 24 per cent and potential for acceleration. Titan is also a market-leader in the organised jewellery industry, with an estimated market share of 6 per cent which implies it has plenty of room to grab market share in the growing organised segment.

Based on the update, analysts are projecting likely Q2 revenues of about Rs 8,850 crore with a small improvement (maybe 30-40 basis points) in the EBITDA margin to around 13.3 per cent, yielding EBITDA of Rs 1,173 crore (Rs 968 crore a year ago). Consolidated PAT could land at around Rs 770 crore which is comfortably better than Rs 640 crore a year ago. However, free cash-flow in this fiscal is expected to reduce due to the expansion process. The company could see a deleveraging process.

The stock has always been highly valued with a current PE that’s usually averaged around 45-50x. The update resulted in a 5.3 per cent jump in the share price to Rs 2,730.50. Various analysts have targets ranging from Rs 2,700 (implying the stock is fully-valued) to Rs 2,970.