Titan delivered exceptional sales for Q2: (i) Jewellery rose by 78% y-o-y on sturdy pent-up demand as the network rollout picked up pace with 13 new Tanishq shops (net) added. (ii) Watches have been up 73% y-o-y on recovery in stroll-ins with Tier-2 cities undertaking improved than metros. (iii) Eyewear was up 74% y-o-y with healthful development across all segments. (iv) Taneira recorded total retailer operation days of 80% with all 14 shops operational. (v) CaratLane’s sales rose 95% y-o-y with two new shops. And (vi) Titan’s standalone sales have been up 64% y-o-y all round, beating consensus by a wide margin.
Key concern now appears to be no matter if valuation is high-priced: Given the stock’s run-up in the previous year (up 84% vs Nifty50 obtain of 55%), the largest be concerned for investors now seems to be no matter if the valuation (FY23 PE 68x) is ahead of the fundamentals and, therefore, no matter if there could be a threat of a derating. In our view, Titan is only midway via its evolving higher development compounding construct.
Investment case remains compelling: (i) Long-term compounding construct is nicely in location as Titan (6-7% industry share) appears nicely placed to capture worth from the jewellery sector’s extended-term development prospective (driven by its customer trust, brand, compelling worth proposition of pricing, exchange presents, design and style, wedding focus) by gaining industry share regularly. (ii) Unorganised to organised shift is a crucial tailwind as mandatory hallmarking is now a different structural push for the business to transition towards organised trade exactly where Titan stands out. (iii) Titan is also developing extended-term development choices, which includes meticulously picking its international foray and new company such as Taneira (ethnic put on), which has begun nicely. (iv) We see a starting of sturdy development phase, driven by network rollout (40+ outlets per annum), sturdy assistance from wedding sales, revival in watches, eyewear, and development accretion from Taneira. We see a decade of a prospective higher development phase for Titan with a income CAGR of 19%. And (v) perceived expensiveness is misleading and is merely a reflection of the “long duration of growth capture” that the industry is prepared to assign and value to winning company models such as Titan. On our framework, the industry is pricing in 15-16% extended-term earnings compounding, which is nicely inside what Titan could provide.
Reiterate Buy and lift TP to Rs 2,650 from Rs 1,980 as we revise our estimates and, therefore, extended-term development price assumptions and roll our valuation forward.