Titan Shares Slide After Q4 Results, But Outlook Still Promising
Here’s what brokerages made of Titan’s Q4 FY22 results.
Analysts bet on Titan Co. after the fourth quarter as jewellery demand improved led by uninterrupted wedding and festive sales after two years of lockdowns, and on store additions across segments even as gold price volatility and resurgence of Covid cases pose as risks.
The optimism comes after the nation’s largest branded jewellery maker reported a drop in its fourth-quarter profit. Sales of its jewellery segment, accounting for 89% of total revenue, fell 4% year-on-year in the three months to March.
“Gold prices in the last one week seem to have moderated,” the Tata Group firm, also one of the favourites of market veteran Rakesh Jhunjhunwala, said in a post-earnings call. The company indicated that its performance in April has been encouraging and it targets jewellery EBIT margin of 12-13%.
Watches and eyewear segments also witnessed slower demand but grew at 12% and 6%, respectively, on a low base in the fourth quarter.
Standalone EBIT margin declined 60 basis points on operational challenges and two one-off employee-related spendings—ex-gratia of Rs 72 crore (largely in employee spending) and a voluntary retirement scheme cost of Rs 51 crore (exceptional item). Gold ingot sales in January-March period amounted to Rs 375 crore. The primary reason for such sales was to optimize Titan’s inventory portfolio amid changing market conditions.
Shares of Titan fell nearly 3% to an intraday low of Rs 2,316.55 apiece as of 9:40 a.m. on Wednesday. Of the 32 analysts tracking Titan, 21 maintain a ‘buy’, six recommend a ‘hold’ and five suggest a ‘sell’, according to Bloomberg data. The average of the 12-month consensus price targets implies an upside of 13.4%.
The stock’s trading volume is more than thrice the 30-day average at this time.
Here’s what brokerages made of Titan’s Q4 FY22 results.
Morgan Stanley
Stays ‘overweight’ with a target price of Rs 2,720, implying a potential upside of 14%.
The Q4 earnings miss was led by weaker margin in the non-jewellery segment, aggravated by one-off costs.
The management sounded optimistic on future growth. Jewellery demand in April has been strong, in line with its FY23 ambitions.
Remains bullish on the near- and medium-term growth outlook, though Covid and gold price volatility remain as risks.
Risks to upside: Faster-than-expected recovery in consumption; easing competitive pressures; faster market share gains; favourable product mix and lower discounts.
Risks to downside: Increase in Covid-19 cases and a delay in urban consumption recovery; increased price competition in jewellery; increase in consumer promotions and discounts; increased investment and weak performance in new businesses.
Emkay Global
Maintains ‘buy’ with a target price of Rs 2,775 per share, implying a potential upside of 16.3%.
Raised estimates by 2-3% on a strong demand environment and aggressive expansion plans.
Potential share gains from the regionalization strategy can offer more upside.
Store additions were robust with 47, 61 and 134 additions for its jewellery, watches and eyewear segments, respectively, in FY22 as against 28, 8 and 15 in FY21, leading to 11% growth in overall retail space.
Strong growth visibility and turnaround in eyewear and online jewellery store Caratlane, too, drive our positive stance.
HDFC Securities
Maintains ‘sell’ at a target price of Rs 1,750 apiece.
The underlying jewellery profitability at 10%, down 90 bps year-on-year, was more underwhelming than 3% drop in jewellery (ex-bullion) revenue.
While Titan’s recovery execution has been on point, a tougher demand environment awaits, courtesy volatile gold prices.
Titan’s customer acquisition cost could rise as gold exchange rises in sourcing mix during periods of uncertain demand and high inflation—a deterrent to its punchy valuation.
FY23 and FY24 EPS estimates are cut by 3% each to account for cost normalisation.
Management commentary suggests April demand has been healthy; however, its sustainability remains in question.
Prabhudas Lilladher
Retains ‘buy’ with a target price of Rs 2,701, with moderate returns in near term.
Cuts FY23/24 EPS estimates by 5.9%/4%.
Titan is well placed to capitalise on long-term growth opportunities led by jewellery share gains due to network expansion and regional thrust and hallmarking benefits; omni-channel strategy across jewellery, watches and eyewear; new growth drivers like Caratlane, Titan Eye+, Taneira; entry into high growth segments like wearables such as smart watches and wireless earphones.
The brokerage estimates 25.3% PAT CAGR over FY22-24 and remain positive given structural story on account of market share gains, strong balance sheet, franchisee based model and strong brand.
However, valuations at 64.3x FY24 leave little room for rerating.
Motilal Oswal
Maintains ‘buy’ at a price of Rs 2,900, implying a potential upside of 22%.
The opportunity for growth is immense in the jewellery industry, with Tanishq’s current market share below 10%.
The company’s fourth-quarter results were above our expectations, led by healthy sales growth in the non-jewellery segments.
Its margin outlook is improving, with a higher proportion of studded jewellery (up 400 basis points year-on-year in Q4 FY22), gradually moving towards pre-Covid levels.
Management said that new customer additions remain strong, indicating continued market share gains from the competition.
The stock’s near-term multiples appear expensive, but its long runway for profitable growth warrants premium multiples.
Despite the volatility in gold prices and Covid-led disruptions, its earnings CAGR has been stellar (24%) for the past five-years ending FY22 and this trend is expected to continue, with over 20% earnings CAGR in the next couple of years.