Titan stock has rallied challenging in a year of disruption, increasing 36% in 2020, and 96% from its March lows. Part of this rally was in the December quarter as Titan managed to provide a pace of recovery not anticipated by the Street when the COVID-19 crisis started. It also highlighted once again the sturdy execution skills of Titan and the formidable customer franchise it has constructed. But now, investors are concerned no matter if the liquidity-fuelled rally has led Titan, like other structural winners, into an overbought position. What is the investment case for owning Titan from right here?
Why personal Titan from right here: Titan is now increasingly viewed as a structural winner in the jewellery sector and COVID-19 has additional consolidated its competitive position. While the stock rally factored in the festive season rebound (Titan had offered earlier guidance), we now think a sturdy development phase has begun and will continue for the next quite a few quarters, continuing to act as a essential catalyst.
If a single have been to ignore this disrupted year, the like-for-like valuation re-rating has been only 10%, and our lengthy-term implied development framework suggests Titan requirements a lengthy-term earnings compounding trajectory of c15% to sustain this several this could appear a stretch, but our evaluation suggests our assumptions are not unrealistic. Key to stock efficiency from right here, we consider, will be sustaining sturdy development momentum. We pencil in 32% jewellery development in FY22e.
Key points from Q3 operating statement: (i) Jewellery sales grew c15% y-o-y, sustaining the sturdy development trend even soon after the festive season. This was driven by a recovery in Metros, wedding demand, coins and studded sales (ii) Titan added 10 Tanishq shops on a net basis in Q3 (24 in FY21 so far). It also opened its very first international retailer (in Dubai) which received a sturdy response (iii) Watches recovered to c88% of prior year level in Q3, and Eyewear is at a c92% recovery level (iv) Taneira launched a new ‘EIRA collection’ of stitched kurta sets and improved its on the web presence. Carat lane grew c39% y-o-y.
Retain Buy with new TP of Rs 1,750: Titan’s appeal is its position to capture worth from the lengthy-term development in the jewellery sector (driven by customer trust, brand, compelling worth proposition of pricing, exchange gives, design and style, wedding concentrate) by gaining marketplace share regularly. It is also constructing lengthy-term development selections such as Taneira (ethnic put on), which has the prospective to be a massive worth driver. Post Q3 update, we have raised our lengthy-term development forecasts and roll forward our model, which outcomes in our new TP of Rs 1,750, from Rs 1,360 prior to.