Titan Co hits over 6-week high on improved outlook; stock nears record high

Shares of Titan Company hit an over six-week high of Rs 1,562, up 4 per cent on the BSE, in the intra-day trade on Tuesday on expectation of a healthy revenue growth on the back of continued expansion in store network as well as opportunities presented by large share of unorganized sector in the industry.

The stock was trading at its highest level since February 11, 2021 and is 4 per cent away from its record high level of Rs 1,621, touched on January 6 this year. In the past one month, Titan has outperformed the market by gaining 11 per cent, as against a 1.2 per cent rise in the S&P BSE Sensex. However, in the past one year, the stock has gained 65 per cent, as compared to a 75 per cent rally in the benchmark index.

Titan's jewellery segment is expected to drive sustained growth in revenues and accruals. The segment showed high resilience to Covid-19 related disruptions and reported a 16 per cent year on year (YoY) growth in October-December quarter (Q3FY21) (net of bullion sales), Icra said.

The rating agency, on March 15, upgraded the long-term rating from "AA+" to "AAA" with stable outlook. It also affirmed short-term rating and rating for the fixed deposit programme. The rating upgrade reflects expectations that Titan, a Tata group entity, will be able to leverage strong brands and market leadership position in the jewellery segment to drive sustained growth in revenues and accruals, Icra said.

Meanwhile, Titan’s jewellery segment witnessed a healthy revenue expansion at a compound annual growth rate (CAGR) of 18.7 per cent and margin expansion from FY16 to FY20. This was aided by improvement in market share as well as additions to the store network.

Growth prospects in the jewellery segment are underpinned by large industry size and fragmented market shares, analysts say. Increasing regulatory restrictions in the jewellery segment have meant greater transparency and higher compliance costs. This has resulted in a sizable churn in the unorganised segment, thus benefiting organised players such as Titan.

"The company has a robust financial profile with strong cash accruals, moderate capital expenditure requirements, comfortable leverage metrics and strong liquidity," Icra said.

Titan's 'War on Waste' programme is well on track with tight control on inventory position and higher focus on gold on lease replenishment (around 56 per cent of inventory). "We expect initiatives to improve cash positions and significantly enhance RoIC (from 31 per cent in FY20 to around 42 per cent in FY23E)," analysts at ICICI Securities said in Q3FY21 results update.

The brokerage firm builds in revenue and earnings CAGR of 14 per cent and 22 per cent, respectively in FY20-23E. Healthy balance sheet, sustained focus on market share gains and better earnings visibility prompts us to upgrade from HOLD to BUY with a revised target price of Rs 1,830, it said.