Titan shares gain 3% as JPMorgan stays 'overweight', expects 25% upside
2 min read 16 Mar 2023, 01:32 PM ISTEven as FY24 revenue growth moderates off a high FY23, JP Morgan believes Titan will remain among the highest of its peers
PremiumShares of Titan Company Ltd surged nearly 3 per cent in the opening session on Thursday after global brokerage firm JPMorgan maintained an "overweight" stance on the stock. The global research firm expects the Tata group stock to hit a target of ₹3,000 per share, suggesting a 25 per cent upside potential from the current market price.
"Our 24 March target price of ₹3,000 is based on a 58 times one-year forward P/E multiple for the standalone business (15 per cent premium to pre-Covid avg) and ₹160 per share for Caratlane (based on 6 times EV/Sales)," the global brokerage said.
The stock of Titan touched an intraday high of ₹247 at 11:40 hours on Thursday. At 1:15 pm, the stock was quoting ₹2,453.95, up 2.29 per cent.
According to the research firm, the stock has fallen 10 per cent year-to-date (NIFTY -6.3 per cent) on potential demand slowdown worries, though the note says spending by its upper income customer base has been fairly resilient.
Even as FY24 revenue growth moderates off a high FY23, JP Morgan believes Titan will remain among the highest of its peers.
“Our recent meetings with leadership teams (Jewellery CEO, Watch CEO, CFO) reinforce our positive view," the brokerage said, adding that it expects market share gains to be the core growth driver supported by multiple strategic initiatives and believes Titan is well on course to achieve its targeted 20 per cent jewellery revenue CAGR over FY22-27E.
“We expect the margin to stay stable at 12-13 per cent as drag from rising gold price competitiveness and growing share of exchange should be mitigated by better mix and operating leverage benefits," the note said.
Wearables, Caratlane, Eyewear, Taneira and international business are other significant LT growth pillars. Titan's valuations are comparable to other large discretionary names (non-auto) and the brokerage views current levels as a good entry point as it has better earnings growth prospects with relatively less downside risk.
Investment thesis
Titan has a dominant position in the leading lifestyle categories of organized jewelry and watches. Its medium-term growth outlook remains good, in our view, supported by various initiatives to drive higher sales of wedding/studded/fashion jewelry, a strengthening value proposition, and new customer acquisitions.
Titan also stands to benefit from higher market share as jewellery purchases shift to organized players and the unorganized segment becomes less competitive.
Within the Indian discretionary consumption space, TitAN is uniquely positioned in terms of hefty headroom for market share led revenue growth over the long term, strong competitive moats, lower threat to profitability and portfolio diversification opportunities.
Risks to rating and TP
Key downside risks include a slowdown in sales growth; increased competitive activity; adverse regulatory measures; high gold price volatility, which depresses gold jewellery demand; significant margin deterioration, and any material consumer purchase shift in favour of lab grown diamonds.
Key upside risks include a recovery in sales growth; improvement in consumer sentiment; and a moderation in gold price volatility.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
