Titan shares drop as margin hit in fourth quarter; must you purchase, promote or maintain?

Shares of Titan Firm fell 2.3% to Rs 1,471.6 every in intraday BSE buying and selling on Friday after the jeweler took successful on its margins within the March quarter of fiscal 21 in resulting from wage will increase, a decrease proportion of studded gross sales. and discount of import duties on gold. At 9:55 am, the inventory was buying and selling greater than 1 % decrease at Rs 1,487 on BSE in opposition to a 0.6 % drop within the benchmark S&P BSE Sensex.

Titan’s working margins contracted 210 foundation factors within the fourth quarter to 10.9%, from 13% a 12 months in the past. “The fiscal 12 months ended March 2021 has been a attempting one for the corporate because the pandemic has hit operations considerably, particularly within the first half of the fiscal 12 months,” mentioned Titan Managing Director CK Venkataraman, in a press release.

Nevertheless, its consolidated internet revenue rose 66 % year-on-year to Rs 568 crore – the best quarterly earnings on report – on the again of a weak base. Bloomberg’s consensus estimates had pegged the Bengaluru-based firm’s fourth-quarter internet revenue at Rs 549 crore. Working revenue, in the meantime, rose 33% year-on-year to Rs 817 crore.

Income for the quarter rose 59 % from a 12 months earlier to Rs 7,494 crore, from a forecast of Rs 7,516.8 crore by a Bloomberg analyst survey. Individually, the jewellery division recorded earnings of Rs 6,397 crore for the quarter (excluding gold bullion gross sales) in comparison with Rs 3,754 crore final 12 months. The Watches and Clothes enterprise recovered nicely through the quarter to report an earnings of Rs 555 crore in opposition to Rs 557 crore the earlier 12 months. The Eyewear enterprise additionally improved with income rising 18% within the quarter, recording income of Rs 127 crore in comparison with Rs 108 crore final 12 months, the corporate mentioned.

Here is how brokerages interpret the outcomes:

Motilal Oswal Monetary Companies

Reco: Purchase | Indicative worth: Rs 1,785 | Upside potential: 19%

Titan jewellery gross sales grew a powerful 71.3% year-on-year to Rs 6,680 crore, however the section’s margin fell 290bp year-on-year to 10.7%. The components which led to a excessive demand for jewellery had been the autumn within the worth of gold, the excessive demand for marriage, the dearth of different technique of expenditure for a marriage, thus boosting the gross sales of bijou, and the earnings different organized and unorganized actors. The latter would proceed to stimulate jewellery gross sales within the quick and medium time period.

Not like different discretionary friends, Titan can get well a few of this misplaced demand. Certainly, underlying demand stays strong, pushed by falling gold costs and robust demand for marriage. Regardless of a 62% year-over-year gross sales decline within the first quarter of FY21, the corporate ended up experiencing optimistic gross sales progress in FY21.

Titan’s medium to long-term revenue progress alternative is best-in-class, mirrored within the EPS CAGR of 24% over the previous three years earlier than the impression of Covid-19 in FY21. There’s a sturdy avenue for progress given the corporate’s lower than 10 % market share and the continued struggles of unorganized and different friends. Whereas valuations of fifty.6x BPA FY23E do not come low cost, the lengthy observe to worthwhile progress deserves a premium a number of.

Kotak Institutional Actions

Recce: Add | TP: Rs 1.625 | Upside potential: 7.8%

We admire Titan’s concentrate on gaining market share. He has taken a number of structural measures (focus on the marriage section, discount of the value differential with the competitors on undifferentiated designs, and so on.) and tactical interventions (agile response to aggressive stress) to generate good points of steady shares. We count on Titan will proceed to prioritize quantity progress and share good points over profitability. We additionally count on a gradual restoration within the jewellery margin over the following few quarters, partly as a result of restoration within the product combine and effectivity good points.

We’ve diminished our estimate of EPS for FY2022E by 17% to account for the impression of ongoing lockdowns. We regulate the estimates of FY2023E, carry ahead and keep the DCF based mostly FV of Rs 1.625.

HDFC Titles

Recce: Promote | TP: Rs 1,300 | Draw back potential: 13.7%

Titan’s 4QFY21 headline elevated 59% year-on-year, in keeping with estimates. That mentioned, its relative acquire in market share (in jewellery) doesn’t look like important, as most massive field jewelers have grown at a fee just like Titan estimated at 63% per 12 months (along with gross sales of ingots / B2B). Moreover, jewellery margins stood at 10.7%, pushed by a decrease income combine (larger bullion gross sales + decrease studded ratio) and decrease gold tariffs. The non-jewelry sector recovered 98% of its core income, however disillusioned profitability as a result of rise in digital communications and decrease gross sales of margin merchandise.

Whereas the execution of the Titan restoration (significantly in jewellery) has been on observe, a robust rebound in volumes has already began in FY22 regardless of the impression of partial lockdowns from April to Might 21 in Maharashtra and Delhi. On this context, the margin of security appears nonexistent at 58x FY23 P / E. Due to this fact, we largely keep our SELL advice with a DCF based mostly TP of Rs 1,300 per share (implying 50x FY23 P / E) . EPS estimates for fiscal 12 months 22/23 stay unchanged.

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