ICICI Direct recommended hold rating on Titan Company with a target price of Rs 1095 in its research report dated June 10, 2020.
ICICI Direct's research report on Titan Company
The Covid-19 pandemic had an unprecedented impact on the retail industry, forcing temporary closure of physical stores from mid-March onwards in India. The same impacted Titan’s performance in Q4FY20. However, controlled opex and higher gross margins led to significant beat in profitability. As guided by the management in its pre-quarterly update, the jewellery division reported revenue de-growth of 5% YoY to Rs 3899.3 crore (SSSG: -9.0%). The company recorded impressive growth of 16.5% in January-February despite high gold prices (up 26% YoY). Watches division reported steady revenue growth of 5% YoY to Rs 558.3 crore (15.7% growth in January-February). Owing to activation of diamond studded jewellery, gross margins improved sharply by 250 bps YoY to 30.4%. Furthermore, significant compression of operating cost aided profitability. Employee expenses remained constant YoY at Rs 285.0 crore (down 13% sequentially), while advertisement expenses fell 30% YoY to Rs 97.1 crore. EBITDA margins (adjusting for Ind-AS 116) for the quarter improved 260 bps YoY to 11.7%. On account of a steady operational performance, PBT grew 13% YoY to Rs 509.3 crore. The company has now opened ~75% of total 1800 stores and expects to operate at ~90% by June end. The initial response has been inspiring with average daily sales of certain stores reaching as high as 80% of pre-Covid levels. The management remains cautious in the near term outlook and targets normalcy by Q4FY21.
We continue to remain structurally positive on the company and its long term growth prospects. However, post the recent surge in stock price, we downgrade it a notch from BUY to HOLD with a target price of Rs 1095 (48.0x FY22E EPS) (earlier TP: Rs 1150).
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