Buy Titan Company; target of Rs 3,990: Sharekhan

Sharekhan's research report on Titan Company

Titan’s Q4FY2024 performance was affected by higher gold prices and increased competitive intensity resulting in lower EBITDA margin of 9.5% (lower than our as well as street’s expectation of 10.5-10.8%). Consolidated net revenue grew 21.9% y-o-y to Rs. 11,229 crore (in line with our expectation of Rs. 11,056 crore), driven by 19% y-o-y growth in the standalone jewellery business and 29% y-o-y and 2.1x y-o-y growth in its subsidiary – CaratLane and TEAL, respectively. Bullion sales stood at Rs. 1,127 crore in Q4FY2024 versus Rs. 1,055 crore in Q4FY2023. Consolidated gross margin and EBITDA margin declined 196 bps and 98 bps y-o-y to 22.3% and 9.5% (lower than our expectation of 10.8%), respectively, impacted by higher offers/ discounts in the jewellery business and higher gold prices. EBITDA grew 9.4% y-o-y to Rs. 1,191 crore and reported PAT grew 4.8% y-o-y to Rs. 771 crore (in line with our expectation of Rs. 769 crore). For FY2024, consolidated revenue grew 25.9% y-o-y to Rs. 51,084 crore (including bullion sales), EBIDTA margin stood at 10.4%, and PAT grew 6.8% y-o-y to Rs. 3,496 crore.

Outlook

Recent elevated gold prices will have an impact on the profitability of Titan’s jewellery business in the near term. Being a large player in the branded jewellery space, Titan has a strong ability to recover the margins in the medium term through relevant strategies. The company is eyeing a revenue CAGR of over 20% during FY2022-FY2027, led by an ambitious growth plan in the medium term. A strong growth outlook, focus on sustained market share gains, and strong balance sheet make it the best play in the discretionary space. Near-term headwinds on margins might lead to weakness in the stock price, which should be considered as an opportunity to buy this quality stock. We maintain our Buy recommendation on the stock with a revised PT of Rs. 3,990. The stock is currently trading at 74x and 58x its FY2025E and FY2026E earnings, respectively.