Demand growth, execution likely to drive Titan's outperformance

Titan's robust June-quarter performance and growth outlook have prompted earnings upgrades, with jewellery demand, market-share gains and execution supporting prospects

Led by the jewellery segment, Titan Company (Titan) reported a strong June-quarter performance. In addition to the jewellery segment, the company registered double-digit growth in other verticals as well.

 

A robust Q1 and expectations of growth outperformance led to brokerages increasing their earnings estimates for the jewellery maker. The management is also confident about its revenue and profit growth over the next four years. Given the Q1 show and outlook, the stock gained over 3 per cent in trade and was the biggest gainer in the Sensex. The stock has gained 17 per cent over the last three months and is trading at 55 times its FY28 earnings estimates.

 

Consolidated revenues of the company saw 29 per cent growth, led by jewellery sales, which saw 30 per cent growth. Excluding bullion/digital gold, jewellery sales were up 43 per cent. Revenues for the watches and eyecare segments saw growth of 21 per cent each. While the watch segment growth was led by mid-twenties growth in the analogue watch category, the growth in the eyecare segment was aided by customer growth of 21 per cent and double-digit growth in average selling prices.

 

The domestic jewellery segment grew 38.2 per cent Y-o-Y on the back of 5 per cent Y-o-Y growth in buyers and a 31 per cent uptick in average ticket size. The gains for the jewellery business came despite a temporary impact on demand in May, given the prime minister’s advisory, customs duty changes and Adhik Maas. However, sales rebounded sharply in June with the resumption of wedding-led purchases. The positive from the margin perspective is that overall buyer growth in studded jewellery (including CaratLane) was higher than buyer growth in plain gold jewellery in Q1FY27.

 

Titan, according to Emkay Research, visibly nullified Street concerns around potential growth moderation with the recent dip in gold prices and reiterated its analyst day guidance of more than doubling topline and operating profit over FY26-30, translating to 20 per cent annual growth.

 

Motilal Oswal Research remains constructive on growth in the jewellery industry, particularly among top players. It expects Titan to remain well-positioned competitively, supported by initiatives such as its exchange programme. Apart from industry formalisation, stability in gold prices can further improve margin visibility for the company, say analysts led by Naveen Trivedi of the brokerage. They reiterate a buy rating with a target price of Rs 6,000.

 

The jewellery segment's operating performance, too, was robust as it reported a 14.2 per cent margin for the quarter. The reported margin was aided by a Rs 407 crore customs duty benefit. The duty was increased from 6 per cent to 15 per cent, resulting in inventory gains for the company. The company also benefited from a 75-80 basis point mark-to-market gain due to divergence between international and domestic gold prices. Adjusted for the customs duty gain, the standalone jewellery margin expanded 67 basis points Y-o-Y to 11.6 per cent.

 

The company expects the jewellery segment margin to be around 11 per cent, aided by initiatives to improve gross margins, cost-cutting initiatives and a richer product mix. The better mix includes a higher share of studded jewellery, a higher mix of lower-carat jewellery and a lower mix of coins.

 

The company’s medium-to-long-term performance, according to analysts led by Abhijeet Kundu of Antique Research, will be driven by market-share gains in the jewellery business on account of a strong brand name, execution and scaling up of the store network. Additionally, improving profitability of other segments would bode well for the company, they add.

 

Though Titan has significantly outperformed the Nifty over the last 12 months, it is trading at a 5-6 per cent valuation discount to DMart and Trent. Emkay Research has an add rating with a target price of Rs 5,600. Titan’s strong track record and best-in-class growth outlook, according to analysts led by Devanshu Bansal of the brokerage, make a strong case for continued re-rating.