Titan gains 2%, hits new high on hopes of healthy operational performance

Thus far in the financial year 2023-24, Titan has outperformed the market by surging 32 per cent as compared to 15 per cent gain in the S&P BSE Sensex

Shares of Titan Company hit a new high of Rs 3,307.35, up 2 per cent on the BSE in Monday's intra-day trade, in an otherwise subdued market, on hopes of the company sustaining its healthy operating performance, supported by strong market position across products. By comparison, the S&P BSE Sensex was down 0.17 per cent at 67,724 at 11:14 AM.

In the past two weeks, the stock has rallied 7 per cent. Moreover, thus far in the financial year 2023-24 (FY24), it has outperformed the market by surging 32 per cent as compared to nearly 15 per cent gain in the benchmark index.

Titan is the market leader in the organised jewellery retailing and watches segments, driven by its strong brands, healthy store additions, association of trust with the Tata brand, and a pan-India distribution network. The company had a strong store network in both jewellery and watch segments with 559 stores in the jewellery segment (Tanishq, Zoya and Mia), 233 CaratLane stores, and 1,031 stores for watches as on June 30, 2023.

Titan has a strong runway for growth in the consumption space in India, with robust earnings growth visibility and compounding for the long term.

"Titan's operating revenue grew 41 per cent in fiscal 2023, driven by robust growth in all the three segments (jewellery, watches and eyewear) supported by store expansion. Operating margin is likely to sustain at ~12 per cent over the medium term, driven by operating leverage, favourable product mix, and expectation of sustained healthy margin for all segments such as eyewear, watches and CaratLane Trading Pvt Ltd," according to CRISIL Ratings.

While the recent run-up in gold prices has led to near-term postponement of demand, Titan has historically performed well when gold prices surged.

During 2008-13, when gold prices went up by a 24.8 per cent CAGR, Titan's jewelry EBIT and overall PAT clocked a CAGR of 49.7 per cent and 35.6 per cent, respectively.

"During the same period, its share price saw a 32 per cent CAGR. Since its making charges are also based on the percentage of value of gold, margins will improve after a lag," analysts at Motilal Oswal Financial Services said.

Titan's medium- to long-term earnings growth opportunity is best-of-breed, reflected in five-year sales/EBITDA/PAT CAGRs of 20.3 per cent/24.3 per cent/23.9 per cent. Given its sub-10 per cent market share in jewellery and the struggles of unorganised and other organised peers, we see a promising growth outlook for Titan," the brokerage said in its annual report update. It maintains ‘buy’ rating on the stock with a target price of Rs 3,570 per share.