Titan management in a recent interview suggested that it has witnessed an encouraging recovery in its jewellery business in July-August led by Tier 2 and Tier 3 towns. September may be light, as per Titan (due to 15 days of inauspicious period), but overall trends point to good demand trends going into festive season. Titan also aims to open 35 new stores in FY21, which seems to be a significant rollout target in a disrupted year. Our interaction with stores also corroborates these trends. Our findings too suggest Tier 2 and Tier 3 towns’ stores registered strong growth in August. This revival in our view is better than broad expectations.
A sustained phase of sharp revenue growth rebound is set to begin: The festive season demand outlook and channel partners’ confidence has improved materially over the past two months. This augurs well for channel restocking ahead of the festive season. In our view, this appears to be the beginning of a revival phase for Titan. Q2 appears better than expectations already and Titan is gearing up for a strong festive wedding season (it is preparing for new collection launches and consumer offers) in Q3 and Q4 —we are pencilling in double-digit jewellery revenue growth in Q3 and Q4 FY21e.
In addition, the base for 1H FY22e is very low as well, which will further support continued revenue growth momentum, making a potential phase of sustained jewellery growth rebound for several quarters in a row, which in our view will be a key catalyst for stock performance. Overall, we expect a jewellery revenue decline of -6.1% in FY21e and growth of c30% in FY22e.
This phase again highlights the structural attractiveness of Titan: This phase of disruption and Titan’s ability to restore normalcy in such a short period, highlights to us the resilience of its business model and increases our conviction that its market share gain journey continues apace — a key appeal for Titan as a long-term compounder.
Valuation post correction very appealing: Titan has corrected after a sharp rally, and we think its valuation is in an appealing zone, and continued momentum in the jewellery business will be a key catalyst for the stock’s performance. We have not changed our estimates, but roll forward our valuation base, which results in a higher TP of Rs 1,250 (from Rs 1,230) and we retain Buy rating .
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