Titan: Studded jewellery, store additions key growth drivers

Krishna KarwaMoneycontrol Research

Titan, India’s leading home-grown jewellery company, justified its premium valuation yet again on the back of an impressive all-round performance for the quarter and year-ended March 2018.

Accelerated transition to a formal economy, consistent growth in the jewellery segment, healthy return ratios, brand appeal, and increase in store count would continue to support its rich valuation.

In FY18, revenues from jewellery products grew on the back of studded jewellery sales, positive response to its revised gold exchange policy, new collections, an uptick in large format stores sales and wedding season demand.

The watches segment reported healthy sales and margins growth, especially on the back of ‘Reflex’ smart band (under Fastrack). While Titan’s other businesses (accessories, fragrances and sarees) reported robust growth, the eyewear segment is yet to recover from the disruption caused by Goods & Services Tax (GST).

On the growth highway

Jewellery
The management’s strategy for this segment is to compound FY18 revenues by 2.5 times over the next five years via emphasis on high-value wedding and diamond studded jewellery, market share gain (from the current 4-5 percent) and improved coverage under its Golden Harvest Scheme.

Network expansion
Titan will continue to expand its 1,480 stores across three segments: jewellery, watches and eyewear. Preference will be given to ‘Tanishq’ jewellery outlets because of their ability to maximise operating leverage. Around 40 ‘Tanishq’ stores will be added in FY19, 75-80 percent of which will be franchise-run. This will help keep its business model asset light, thereby generating better returns on capital employed.

Watches
Consolidation of redistribution stockists, ‘Fastrack’ activations, cost efficiency and periodic introduction of variants will be some of Titan’s key priority areas in this segment. The company is bullish on the prospects of growth through the e-commerce route and large format stores in particular.

Eyewear
Problems at the distributors/dealers’ end in the aftermath of GST continue to persist, resulting in subdued restocking of sunglasses at their end. Titan, of late, has been shifting its focus towards developing omni-channels, prescription eyewear and launching ‘Fastrack’ lenses.

Outlook
In addition to the above-mentioned moats, Titan aims to achieve a turnover of Rs 50,000 crore by FY23 end, while simultaneously expanding margins through the right product mix across segments. Backed by a steady track record and strong balance sheet, the company is well-poised to outperform its peers.

At 46.1 times FY20 projected earnings, the stock prices in all positives. With the Tata Group having ambitious plans for consolidation and exploring group synergies, further positive surprises cannot be ruled out. Recent challenges in the gems and jewellery sector have catapulted Titan to an enviable position among organised players. We recommend buying on any weakness to build long positions in the stock.

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