Q1FY24 Review: Titan: Weak start to the year but outlook strong

3 Aug 2023 , 02:11 PM

Titan’s Ebit margin in the Jewellery business missed estimates, as the company invested aggressively in growth/market share gains to tackle uncertain demand conditions. Despite the miss in Q1, the company reiterated margin guidance of 12-13% in FY24, driven by higher studded share expected in Q2/Q4. Analysts of IIFL Securities cut their FY24/25 EPS by 6%/3% on lower Ebit margin in jewellery business. At 60x FY25 EPS, valuations are high, but analysts of IIFL Securities believe that Titan is best-placed among the Discretionary pack to post 20% EPS Cagr from FY24-26. Maintain BUY, TP of Rs3,350. 

Margins miss estimates: 

Titan reported a robust sales growth (exbullion) of 19.2%, despite volatile demand conditions driven by Jewellery clocking growth of 19.3% YoY. However, margin performance was weak with jewellery Ebit margin of 11% falling by ~150bps YoY (ex one-off in base) and was below Analysts of IIFL Securities estimate of 12%. Watches/Eyecare Ebit margin of 11.5%/17.2% contracted by 166bps/243bps and was below IIFLe of 14%/18%. 

Stepped up investments to drive growth: 

In response to volatile demand conditions in the quarter, Titan dialled up investments in gold on exchange offer, regional brand building campaigns and gold raterationalisation program to gain market share. Due to this, growth picked up from May-end with gold on exchange forming 50% share in the quarter vs ~40% typically. However, this impacted margins in the business, but the company reiterated its guidance of 12-13% margins in FY24. This will be supported by higher share of studded in Q2/Q4 and improving geography mix with higher realisations. 

Cut FY24/25 EPS by 6%/3%: 

Analysts of IIFL Securities cut their estimates on lower margin in the Jewellery division to 12.2%/12.5% in FY24/25 (12.8% earlier). They believe that the company has multiple levers to drive growth while also maintaining margins amidst uncertain demand conditions. At 60x FY25 EPS, valuations are high; but their think that Titan is best-placed among the Discretionary pack to grow robustly in the medium term. Their forecast FY24-26 EPS Cagr of 20% and maintain BUY, TP of Rs3,350.