TITAN REPORTED HEALTHY OPERATIONAL PERFORMANCE WITH STRONG BEAT ON THE MARGINS FRONT

News:

 As guided by the management in its pre-quarterly update, the jewellery division (excluding gold bullion sale in both the quarters) reported robust sales growth of 18% YoY to Rs 7515 crore (impressive three year CAGR: 27%). Sales growth was driven by both buyer and ticket sizes, with new buyer contribution continuing to be healthy at 50%. Share of studded ratio improved 200 bps YoY to 32%, however was below pre-covid levels (37%).  CaratLane (72% owned subsidiary), continues to scale up rapidly with sales growth of 53% YoY to Rs 448 crore. Watches segment reported 20% YoY growth to Rs 830 crore (three-year CAGR: 5%), whereas eyewear division reported 4% YoY growth to Rs 167 crore (three-year CAGR: 4%). Overall consolidated revenues (including gold bullion sale: Rs 482 crore) grew by 22% YoY to Rs 9163 crore (I-direct estimate: Rs 8800 crore).

·         Owing to better studded mix and benefit of higher diamond prices, gross margins expanded significantly by 260 bps YoY to 27.6% (I-direct estimate: 26.5%). Marketing spends continued to be at higher levels of 2.4% as percentage to revenues (Q2FY22: 1.8%, Q1FY23: 2.3%). EBITDA margins improved 70 bps YoY to 13.6% (I-direct estimate: 12.9%), with absolute EBITDA increasing by 29% YoY to Rs 1247 crore (I-direct estimate: Rs 1137 crore, three-year CAGR: 34%). On the segmental front, EBIT margins for jewellery division improved 138 bps YoY to 13.6%, while watches segment reported EBIT margins of 14.7% vs. 13.1 Q2FY22.

·         Tracking robust operational performance, PAT grew by 30% YoY to Rs 835.0 crore (I-direct estimate: Rs 765 crore, three year CAGR: 39%).

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 Titan continues to be one the fastest growing discretionary companies (three year CAGR: 23%) in our retail coverage universe. Robust performance in challenging times reaffirms our thesis of long term market share gains for Titan. It has, over the years, withstood challenges and emerged as a resilient player. We believe Titan is a structural growth story and appears to be a key beneficiary of the unorganised to organised shift in the Indian jewellery market. Company has clocked robust growth in H1FY23 and as per our estimates we expect Titan to exit with more than 30% YoY revenue growth in FY23E (driven by jewellery segment). Over the longer term company aspires to grow jewellery revenues by 2.5x by FY27 (implied CAGR: 20% from FY22 base). Company generated positive operating cashflows during H1FY23 (Rs 761 crore) and continues to have robust cash and investment worth Rs 1600 crore.

Impact:

Positive