Titan Company: Adorning Growth, Accessorizing Returns

Company Overview:

Titan Company operates in various discretionary categories, including jewellery, watches, eyewear, and Indian ethnic wear. Its jewellery brand, Tanishq, leads the market with a ~7% market share and over 900 exclusive brand outlets. The company's presence in branded eyewear is marked by its retail brand, Titan Eye+, which has 913 exclusive outlets and 8,000+ multi-brand outlets that include brands like Fastrack and Police. Titan operates in the ethnic Indian apparel with Taneira which has a total of 62 outlets across the country.

Historical Performance:

• Revenue growth of ~17% YoY and the addition of 86 stores during the quarter, bringing the total retail network presence to 3,035 stores
• Domestic Jewellery operations recorded a strong YoY growth of around 19%, driven by more buyers and higher same-store sales
• Watches & Wearables domestic business grew by about 7% YoY, with notable growth in analog watches and Wearables, especially through the Helios channel
• Revenue from the Eye Care Division declined by around 1% YoY, even as the company opened a Titan Eye+ store in Dubai
• The Emerging Businesses segment saw Taneira's Revenue surge by ~37% YoY, with the addition of 11 new stores
• Fragrances & Fashion Accessories Revenue increased by ~12% YoY, with Fragrances growing by 9% YoY and Fashion Accessories by 18% YoY
• Caratlane's business witnessed strong growth of around 30% YoY, with 10 new domestic store additions, expanding the network presence to 272 stores

Industry Analysis:

• As per India Ratings and Research, The Indian economy is likely to transition to an upper-middle income country, with a per capita income of $4466, between FY2033-36. This will drive the demand in the gems and jewellery market as the number of affluent individuals rises
• India's smart wearable market is forecasted to grow at a 23.9% CAGR in the next 4 years, which highlights a huge opportunity for the wearable players
• The ethnic wear market is estimated to grow at a CAGR of ~6% between 2024 and 2027
• A 21-acre jewellery park commissioned by The Gem & Jewellery Export Promotion Council (GJEPC) is being developed with an investment of INR 50,000 Crs. in Navi Mumbai to increase trade in this segment

Key Drivers and Investment Thesis:

1. Strategic Expansion: Titan Company added 44 new stores in Q4FY24, including 10 Titan World, 20 Helios, and 14 Fastrack stores, reinforcing its strategic expansion plan. The Jewellery brand, Tanishq, has expanded internationally with new store openings in Dubai and Chicago, while domestically adding 11 Tanishq and 16 Mia stores, setting the stage for global growth.
2. Market Penetration and Margins: The company is focusing on market penetration initiatives to expand its wedding market share in South India and is expected to maintain operating margins of 12%+.
3. Revenue Targets: Titan maintains its FY27 target of ~INR 57,000 Crs. in revenue from the jewellery segment, including international sales. Ethnic wear sales under the Taniera brand are anticipated to reach ~INR 1,000 Crs. in FY27, driven by the opening of 60+ outlets and online sales. Women's bags under the Fastrack brand are expected to clock ~INR 1,000 Crs in revenues in FY27, with a sale of ~35 Lac bags.

Financial Analysis and Valuation:

We valued Titan Company Limited using DCF Valuation with the following assumptions:

• Equity Risk Premium: 7.8%

• Beta: 1

• WACC: 13.7%

• Terminal Growth: 6%

Based on our analysis, we arrive at a target price of INR 4,363 for Titan Company Limited. This implies a 21% upside potential in the stock price within the next 12 to 18 months.

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Recommendation:

We recommend a "Buy" rating for Titan Company Limited, considering its strong market position, strategic expansion plans, and growth prospects across various discretionary categories. The company's focus on market penetration, revenue targets, and international expansion, coupled with the growing demand for jewellery, watches, eyewear, and ethnic wear, makes it an attractive investment opportunity in the consumer discretionary space.

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