Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,910.1553.35
Stock Analysis, IPO, Mutual Funds, Bonds & More

Titan Company could glitter more than star consumer companies

Stricter compliance norms have helped Titan gain market share in the jewellery business.

Dec 25, 2018, 07.16 AM IST
0Comments
BCCL
Gold.-bccl
Stricter compliance norms have helped Titan gain market share in the jewellery business.
ET Intelligence Group: India’s biggest listed jeweller and watchmaker had a tepid first half to the fiscal year by its usually sparkling standards. But the management has indicated that growth would rebound in the second half of FY19, and that could make Titan a glossier investing bet in the consumer space than Hindustan Unilever, Britannia, or Godrej Consumer.

After single-digit sales growth in the four years to FY16, Titan issued the guidance of a 20% compounded growth, prompting a re-rating in the stock: It climbed from ?360 in the beginning of 2017 to Rs 1,000 this April. However, after a lacklustre performance in the second quarter of FY19 – earnings growth of 8% against expectations of more than 20% - the Titan stock lost ground.

Despite this, the management has maintained its guidance of 20%- plus growth. “We will grow at near-25% in the second half,” said Subbu Subramaniam, CFO, Titan. “We had guided for a guidance of two and half-time sales from FY17 to FY22. We maintain that, but now we say from FY18 to FY23. We had not anticipated a slowdown in 2017 in which the entire industry de-grew.”

To achieve revenues that are two and-a-half times the current level, the company must expand at a 20% CAGR. Where will this growth come from? “We are banking on the larger share of the jewellery market. About 60% of India’s jewellery demand comes from the wedding segment. For us, the wedding collection is only 20% now and we expect to take this to 50%,” Subramaniam said. Contribution from wedding jewellery last year was 15%.

Stricter compliance norms over the past few years have helped Titan gain market share in the jewellery business. Growth of 25% in the next two years should mean a quicker pace of earnings expansion due to operating leverage. While jewellery makes up 85% of the company’s profits, its second largest business — of watches — is also showing improvement. The management attributes this to better product offerings and online retailing.

“In an encouraging sign, the wedding season demand is scaling up well for Titan. This should lift management confidence as it had guided for healthy growth (25-30%) for the December quarter,” Krishnan Sambamoorthy, an analyst with Motilal Oswal, said in a recent report. “In our view, if consumers continue flocking to its stores in the wedding season, jewellery sales growth of 25% for the full year is achievable.”

On its other ventures such as the fragrances and the recently launched saree business, Subramaniam said that these are all very small now and unlikely to consume any large capital in the near term.

With growth exceeding 25%, Titan will be the fastest growing consumer company. On FY21 earnings, the stock is trading at 35 times, as against other large consumer companies such as HUL, Britannia, Godrej Consumer Products and Dabur, which are all trading at higher multiples of 40 or more.
Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service