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Motilal Oswal
Titan Co (Buy)
Target: ₹2,830
CMP: ₹2,401.55
Titan Company’s sales for Q2-FY22 were in line (up 64.6 per cent) at ₹7,490 crore, although the operating margin at 12.9 per cent for the quarter (est. 10.7 per cent) came as a positive surprise and stood at its second-highest level since Q2-FY06.
This led to EBITDA and PAT surpassing our estimates by more than 20 per cent.
What was even more remarkable was that this margin improvement was achieved in a quarter that still did not see the contribution from studded jewellery returning to normal levels and witnessed low margin bullion sales as well. Nevertheless, the sharp increase in sales is likely to have helped Titan on the operating leverage front.
Management has stated that it aims to keep jewellery margins in the 12-13 per cent range.
Jewellery outlook remains good as well, given the healthy festive season commentary. Management has also indicated significant expansion plans in the company’s smaller businesses like Eyewear and Taneira.
At its current valuation of 79.3x FY23E EPS, the stock’s near-term multiples appear expensive, although its long runway for profitable growth warrants premium multiples. Titan remains our top pick in the discretionary consumption space.
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