Titan share price: Sharekhan maintains Buy recommendation with price target of Rs 1710

Sharekhan says for Q4FY2021, Titan Company posted a mixed performance. Performance was strong on the revenue front but disappointing on the margins front. As stated in the pre-quarterly update, the company delivered robust sales growth of 60% with strong growth of 70% in the jewellery business. Consolidated OPM declined by 210 bps y-o-y to 10.9% mainly on account of lower gross margins in both jewellery and watches business. Thus, operating profit grew by just 33.4% less than revenue growth during the quarter. Sharekhan maintains Buy recommendation with a price target of Rs 1710.

Titan’s jewellery business retained its strong growth momentum because of market share gains and a sharp decline in gold prices, boosting high gold demand during the quarter. This resulted in robust growth of 70% in the jewellery business (also aided by a low base of Q4FY2020). Combined months of January-February 2021 registered revenue growth of 32% y-o-y. Ticket size has normalised compared to the initial period of last year after the lockdown and it has improved on a y-o-y basis, highlights Sharekhan.

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Further, footfalls have seen strong recovery with robust double-digit growth during the quarter. On the other hand, eyewear business registered 20% growth (with the first two months registering 4% growth). April started on a good note with the first 15-20 days seeing good demand for wedding jewellery. However, with rise in COVID-19 cases and consequential localised lockdown by various state governments, around 50% of Titan’s jewellery stores closed operations. Considering the strong pent-up demand in the jewellery business after the first wave of COVID-19 surge, management is confident of recovery in sales once COVID-19 situation eases down in the coming months, says Sharekhan.

Sharekhan Highlights that higher demand for wedding jewellery due to a delayed wedding season, market share from small jewellers, and adding more stores in the tier-2 and tier-3 towns would help the jewellery business achieve double-digit growth in the medium to long term. Other businesses, such as watches, are expected to recover post improvement in the discretionary environment. Jewellery business margins are expected to improve in the coming years due to better revenue mix and higher billing value. Better operating leverage would help watches margins to improve in the coming years.

Titan Key positives:

Jewellery retail sales grew by 32% in January-February on a comparable basis, led by strong improvement in footfalls and bill value
Cash on books improved to Rs. 3,000 crore because of better working capital management
Caratlane registered yet another quarter of strong revenue growth of 59%, with strong improvement in profitability

Titan Key negatives:

Gross margins decreased by 832 bps due unfavourable mix in the jewellery and watches business
TEAL’s (subsidiary of Titan) revenue decreased by 25% as the aerospace business continues to face headwinds in the industry