Hold Titan Company; target of Rs 1170: ICICI Direct
ICICI Direct recommended hold rating on Titan Company with a target price of Rs 1170 in its research report dated August 11, 2020.
August 12, 2020 / 05:37 PM IST
ICICI Direct's research report on Titan Company
As guided by the management in its pre-quarterly update, jewellery division reported revenue de-growth of 57% YoY to Rs 1783 crore (including bullion sale of Rs 601 crore). Excluding bullion sale, revenue for the division fell 71% YoY (grammage de-growth: 81%) with sales in May, June around 20%, 72%, respectively. The company is expecting recovery rate to improve at 80% of pre-Covid levels by end of Q2FY21. The impact of pandemic was much more severe on the watches division as the segment reported revenue de-growth of 90% YoY to Rs 75.0 crore. Sales continued to remain under stress, with a recovery rate of 40% in July. Revenue from eyewear division de-grew 80% YoY to Rs 30.0 crore. Overall consolidated revenue de-grew 62% YoY to Rs 1979.0 crore. Gross margins deteriorated 550 bps YoY to 22.0% owing to lower share of studded ratio (18% vs. 25% YoY) and higher demand for plain gold jewellery. Despite sharp reduction in advertising spend (down 86% YoY), profitability in the quarter was materially impacted due to other expenses staying elevated (certain expenses pertaining to ineffective hedge that Titan did not quantify). Hence, EBITDA losses were at Rs 253.0 crore. Currently, ~97% of stores are operational and management has reiterated its stance of achieving normalcy levels by Q4FY21E.
Robust balance sheet and asset light distribution model have enabled Titan to outperform peers. While near term headwinds may hamper the performance of the company, we continue to remain structurally positive on the company and its long term growth prospects. We maintain HOLD with a revised target price of Rs 1170 (52.0x FY22E EPS, previous target price: Rs 1095).
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