Many analysts are upbeat about Titan’s growth prospects but feel fresh surge in covid-19 cases is worth tracking
Titan Co. Ltd’s December quarter (Q3FY22) update brings cheer, setting the tone for robust financial results. The jewellery retailer saw strong growth momentum continue in Q3, with overall revenues rising by 36% year-on-year (y-o-y).
The mainstay jewellery business, which accounted for more than 85% of revenues for the half year ending September, continues to shine. Excluding bullion sales, jewellery revenues increased by 37% y-o-y on a decent base last year. Analysts estimate strong volume performance last quarter. Small wonder, Titan’s latest update has prompted many analysts to raise their earnings estimates. For instance, Prabhudas Lilladher Pvt. Ltd has increased FY22/23/24 earnings per share estimates by 10%, 5.8%, and 6.5% to ₹25.6, ₹33.4, and ₹42.2, respectively.
The robust jewellery demand this time was led by festive season sales in October and November, according to Titan. Overall, ticket size was about 15% higher than pre-pandemic levels.
Titan’s second main business is watches, revenues from which rose by 28%, helped partially by a softer base. In Q3FY21, the watch segment saw a 12% decline.
Overall, the strong revenue trends are likely to aid margin improvement. “A slight improvement in the studded mix and operating leverage should lead to about 150 basis points improvement in its Ebitda margins to 13.2%," said analysts from Emkay Global Financial Services Ltd. Ebitda is earnings before interest, taxes, depreciation and amortization. One basis point is 0.01%. Ebitda margin in Q2FY22 and Q3FY21 were 13.3% and 11.8%, respectively.
Many analysts are upbeat on Titan’s growth prospects. Nonetheless, restrictions in view of the fresh surge in covid-19 cases are worth tracking. “Going ahead, we expect the jewellery division to continue to register strong performance, with stability in gold prices. However, the threat of new lockdowns given the rise in covid-19 cases remains to be a key monitorable," said analysts from Dolat Capital Market Pvt. Ltd. As such, management commentary on demand trends when Q3 results are ann-ounced would be key for investors.
Titan’s shares touched a new 52-week high on Friday on NSE, though they closed nearly 1% lower. The stock has put up a stellar performance.
Over the last one year, the Titan stock has appreciated around 65% vis-à-vis the Nifty50 index’s gain of about 25%. Of course, valuations of the stock are now pricier. Based on Bloomberg data, Titan’s shares now trade at 82 times estimated earnings for financial year 2023. The stock’s stellar returns and expensive valuations may well keep significant upsides at bay in the near future.