Titan Company.
Titan delivered a strong performance in Q1FY2023 with consolidated revenues growing by 2.7x driven by pent-up demand and strong sales on auspicious days; EBIDTA margins stood at 12.7% and PAT came at Rs. 790 crores versus Rs. 18 crores in the corresponding quarter last year.
Stellar Q1 - Revenue growth at 2.7x y-o-y; aggressive store additions.
Titan’s consolidated revenue grew by 2.7x y-o-y to Rs. 9,443 crores driven by 3.1x y-o-y growth in jewellery business revenues to Rs. 7,600 crores (ex-bullion), while revenue of the watches and eyewear business grew by 2.7x each to Rs. 785 crore and Rs. 183 crores respectively. Excluding bullion sales, revenue grew by 2.98x y-o-y to Rs. 8,975 crores. The 3-year CAGR came in at ~20.1%. Titan’s subsidiary, CaratLane registered strong performance by posting revenue of Rs. 482 crores and profit of Rs. 27 crores. TEAL reported revenues of Rs. 88 crores and a loss of Rs. 6 crores (before taxes). All the key divisions recorded healthy margins aided by better realizations across product categories.
Jewellery business shines in Q1.
Titan’s jewellery business (excluding bullion sales), contributing 88% to total revenue, registered a strong growth of 3.1x y-o-y in Q1FY2023 to Rs. 7,600 crores. The 3-year CAGR came in at 23.4%. Gold and studded jewellery both grew by ~260% y-o-y. The jewellery business had a good start to FY2023 with robust sales on the auspicious occasion of Akshaya Tritiya in May 2022, after a three-year gap. Sales growth was driven by both a higher number of buyers and increased ticket sizes, with new buyers’ contribution continuing to be robust at 46%. Whilst the wedding segment recorded a healthy growth of 178% y-o-y.
Strong revenue and profitability growth in the watches and wearables business.
The watches & wearables business, which contributes 9% to total revenue, registered 2.7x y-o-y growth on a low base of Q1FY2022 to Rs. 785 crores driven by healthy growth across channels and brands. Key channels of multi-brand retail (MBR), Titan World and large format stores (LFS) continued their growth trajectory from FY2022.
Eye care revenue growth backed by store additions.
The eye care business grew by 2.7x y-o-y during the quarter to Rs. 183 crores driven by growth in all its major categories. The company added 56 new stores during Q1FY2023 across the cities of Bengaluru, Kolkata, and Chennai, accelerating the journey to reach 1,000 Titan Eye Plus outlets pan-India by the end of FY2023.
Robust Q1 for other businesses.
Fragrances and Fashion Accessories, Taneira Other businesses grew by 4x y-o-y to Rs. 56 crores. The fragrances and Fashion Accessories (F&FA) segment grew by 275% y-o-y driven by healthy growth in Trade, LFS and e-Commerce channels. In Fragrances, the Brand SKINN tapped into the premium segment with the launch of ‘SKINN Nox’ in both Homme & Femme variants.
Titan Engineering and Automation Limited (TEAL).
Strong revenue growth of 29% y-o-y to Rs. 89 crores with both divisions - Automation Solutions (AS) and Aerospace and Defence (AD), performing equally well. Orders in the AD business grew 140% y-o-y indicating a strong recovery.
CaratLane (72.3% owned subsidiary).
Business revenue grew by 204% y-o-y to Rs. 483 crores in Q1FY2023 led by strong demand around Akshaya Tritiya (AT). Along with AT activations, growth was driven by the ‘Borla Hero’ collection and 200 new design launches across price points and business segments for occasion wear, studs and neckwear. Caratlane added 5 new stores for the quarter, taking the total store network to 143 stores spread across 53 cities across India.
Company grouth outlook.
Eyeing strong growth over the next five years Titan is focusing on Capability (investing in talent), partnerships (long-term partnerships with store owners/karagirs), expanding its portfolio, expanding the international reach and growing deep into Indian markets (expanding its presence into Central India) to drive consistent double-digit revenue growth and scale-up in the EBIT margins the over the next five. Management targets the jewellery business to grow by 2.5x by FY2027; the Watches business to reach Rs. 10,000 crores by FY2026 and eyecare to grow in double digits in the coming years. Key drivers of EBIT margins would be an improvement in improvement in the profitability of watches/eyewear, and support from new ventures while jewellery business margins remain stable for the next 2-3 years and gradually improve.
Titan Company Ltd stock recommendation.
Titan is aiming to grow its revenue at a CAGR of over 20% over FY2022-27 on the back of its ambitious growth plan in the medium term. This along with consistent improvement in margins will help cash flows improve strongly in the coming years. FY2023 will be a strong year for the company on the back of a low base in the core businesses. Stock is currently trading at 67.9x and 53.7x its FY2023E and FY024E earnings. The company’s strong growth outlook, industry tailwinds in the medium term and strong balance sheet make it the best play in the retail space.
Titan Company Ltd stock target Price.
We have a buy recommendation on the stock with a Target Price of Rs 3000.CMP 2400.
Key Risks
The rise in gold prices: Any increase in gold prices would affect the profitability of the jewellery segment and the earnings growth of the company.
The slowdown in discretionary consumption: Any slowdown in discretionary consumption would act as a key risk to the demand of the jewellery and watches division.
Increased competition in highly penetrated categories: Increased competition in highly penetrated categories such as watches or jewellery would act as a threat to revenue growth.
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