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

Titan retained a strong festive momentum with the jewellery business growing by 15% in Q3 FY21. Strong traction was seen in wedding jewellery purchases with a higher ticket size with a rise in wedding purchases and soaring gold prices. Titan to benefit from people shifting to trusted brands and market share gains. This, along with a relatively stable balance sheet and strong return profile, makes it a better play in the retail space. Sharekhan maintains Buy recommendation on Titan with revised price target of Rs 1710.

The highlight of the quarter was good recovery witnessed in store walk-ins and pick-up in sales in metros and top cities. Share of studded jewellery (stood at 26% in Q2 and 18% in Q1) continues to improve but is yet to reach pre-COVID levels. Raw gold sales stood at Rs. 334crore, while the share of gold coins remained higher.

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On the other hand, businesses such as Watches and Eyewear recovered to 88% and 92% in Q3FY2021 respectively better than management earlier guidance (versus a 55% and 61% recovery achieved in Q2FY2021). We expect overall operating margins (OPM) to recover to 11% in Q3 FY21 compared with 6.9% in Q2FY2021 mainly on account of better operating leverage. Higher demand for wedding jewellery due to a delayed wedding season, market share gained from small jewellers and further store additions in tier-2 and tier-3 towns would help the jewellery business maintain the double-digit growth momentum.

The watches business has seen a better-than-expected recovery and with a month-on-month recovery in footfalls, increase in omni-channel capabilities, higher online sales and strong demand for wearable would help watches business to achieve strong growth in FY2022- 23 with a steady improvement in the business margins. Titan is restructuring the eyewear business model by closing down non-profitable stores and introducing ‘Eco Lite’ stores requiring lower investment. This will help improve profitability of the business in the long run.

The company has closed down 52 stores and added 39 stores in Q3. Improving volumes in the jewellery business, recovery in the watches business and shutting down of non-profitable eyewear stores would help the OPM to recover to double digits in FY2022. This will further help the return ratios to post stark recovery in FY2022 with RoE and RoCE expected to stand at 26% and 31%, respectively.

Key Risks:

Any disruption in the recovery of jewellery business due to a spike in the covid cases in various states would act as a key risk to the earnings estimates.