Krishna Karwa Moneycontrol Research
Highlights:
- Valuations stretched after a recent price rally
- Jewellery segment to do well
- Margins in the watches segment to remain under pressure
- Eyewear, lifestyle products on the right path
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The management of Titan Company seemed pretty upbeat about its Q3 numbers, a recent exchange filing suggests. The stock’s upward price trajectory in the last three months, however, limits scope for a re-rating.
To make the most of a seasonally strong quarter, store additions and introduction of new product variants across the three segments (jewellery, watches, eyewear) were accelerated. As on December 31, 2018, the company's total retail area crossed the 2 million square feet mark.
Jewellery on an upswing Healthy same-store sales growth, market share gains and strong traction during the Diwali-Dussehra period should aid revenue growth and result in operating leverage.
The company launched its Utsav range of heritage gold jewellery, Preen collection of party diamond jewellery and Aveer 2 range of men's jewellery.
27 new Tanishq outlets were added and three were shut in 9M FY19, thus taking its total store count to 280 stores as on December 31, 2018.
The management estimates top-line growth of 22 percent year-on-year by FY19-end in this segment.
Expect subdued margins in watches Product launches across the three brands (Titan, Fastrack, Sonata), coupled with strong offtake in the modern retail and e-commerce formats, should keep the revenue momentum (observed in H1 FY19) going.
Owing to significantly higher spends on marketing, EBIT margins will contract in Q3.
Eyewear: New strategy working well Emphasis on selling affordable products, commencement of frame manufacturing and new assortments (in prescription eyewear and sunglasses) will be the key revenue drivers in this segment. It remains to be seen if these initiatives translate in a noticeable uptick in margins.
Lifestyle products picking up pace SKINN, a premium perfume brand, has been one of the best-selling ones in departmental stores, in spite of discounts offered by some international names. Investments in brand-building are also underway.
Taneira, the company’s saree brand, has witnessed a positive response at its newly opened store in Delhi (it is the fourth Taneira outlet in India). By virtue of a digital promotional campaign, a new collection of bridal wear (lehengas, sarees) has been made available too.
Is this the right time to invest? Given Titan’s strong fundamentals, an edge over its competitors, a robust brand appeal and promising long-term prospects in the jewellery space (constituting around 80 percent of annual sales), it will continue to trade at a premium.
After hitting a 52-week low as recently as October 9, 2018, the stock has been on a steady upmove. At current levels, it trades at 47 times its FY20 projected earnings.
Considering the heady valuations and sharp rally, we advise buying on market volatility-triggered downsides.
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