Titan Company - 3QFY17 Result Update - Dazzles in Dark Times - Reliance Securities

Titan Company has posted an impressive performance in 3QFY17 especially in the backdrop of demonetization While net revenues increased by 13.9% YoY to Rs38.7bn, net profit rose by 13.1% YoY to Rs2.6bn and EBITDA grew impressively by 25.5% YoY to Rs3.5bn. We continue to remain positive on Titan owing to its leadership in organised jewellery market, success of new products and recovery in watch business. Envisaging Titan to deliver 12% and 18.4% CAGR in revenue and profit respectively, we maintain our BUY recommendation on the stock with an upwardly revised Target Price of Rs457.

Jewellery Biz Shines

Overall grammage growth in Jewellery business stood at 4% in 3QFY17, while the average gold prices were 14% higher during the quarter. Lower studded jewellery ratio at 21% and sharp 40% YoY rise in coin sales dragged gross margin profile of jewellery business. Management has decided to merge 20 out of 29 Gold Plus stores into Tanishq stores over the next two quarters. Launch of new jewellery collections - Shubham & Nakashi - received encouraging response from the consumers. Caratlane also witnessed a good quarter in spite of demonetization with faster adoption of digital payment system. Segmental EBIT margins remained flat at 14.3% leading to 15% rise in EBIT. The Management expects to get continued benefits from increased government crackdown on cash transactions and implementation of GST.

Margins Improve in Watch Biz

While overall revenues from watches business grew by 5% YoY to Rs5.1bn, domestic sales grew by 9% YoY on the back of 6% YoY growth in volume. While World of Titan outlets and Helios recovered smartly post demonetization, the trade channel - which accounts for half of division's sales - has taken a longer time to recover. Improved product-mix also aided improvement in segmental EBIT margins by 370bps YoY to 10.4% of sales. Segmental EBIT rose by 63% to Rs529mn.

Outlook & Valuation

Being the market leader, we expect Titan to benefit substantially from increased share of organised jewellery industry, going forward. Further, strong success of new products and recovery in watches business also reinforces our positive stance on the Company. We expect Titan to post revenues of Rs121.5bn and Rs140.3bn and net profit of Rs83bn and Rs9.9bn in FY17E and FY18E, respectively. Based on expected EPS of Rs11.1, the stock currently trades at 35.3x FY18E earnings. We reiterate our BUY recommendation on the stock with an upwardly revised Target Price of Rs457, based on 35x Dec'18 earnings.

Shares of Titan Company Limited was last trading in BSE at Rs.429.5 as compared to the previous close of Rs. 427.1. The total number of shares traded during the day was 105782 in over 3108 trades.

The stock hit an intraday high of Rs. 435 and intraday low of 424. The net turnover during the day was Rs. 45634060.

Source : Equity Bulls

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