Titan Company Rating: buy : Q3 growth beat estimates by wide margin

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Growth was impressive in Q3, beating expectations by a wide margin: (i) Jewellery rose by 37% y-o-y on a relatively high base (+16% last year) driven primarily by festive demand. Network rollout picked up pace with addition of 14 new Tanishq stores (net). (ii) Watches & wearables were up 28% y-o-y led by Tier 2 and 3 cities and sustained recovery in walk-ins. (iii) Eyewear was up 27% y-o-y led by healthy demand growth and network expansion. (iv) Taneira opened two new stores, taking its total store count to 16.

(v) CaratLane’s sales rose 64% y-o-y and it added six new stores. And (vi) Titan’s standalone sales were up 36% y-o-y overall, beating consensus by a wide margin.Should you still buy Titan? The stock has run up 64% in the last year, outperforming the Nifty 50 index (+26%) by a wide margin and, while the shares now trade at a FY23e PE of 76x, we still see Titan as the one of most attractive compounding stories and one of our top Buy ideas in India consumer. This is driven by the exceptional continuing performance of the Jewellery business as well as by the prospect of building large-scale new businesses that should continue to fuel this construct.

Key parts of Titan’s long term appeal: (i) Long-term compounding construct is well in place as Titan (c7% market share) looks well placed to  capture value from the jewellery sector’s large unorganised size (driven by its consumer trust, brand, value proposition of pricing, exchange offers, design, wedding focus) by gaining market share consistently. We pencil in 5-year Jewellery CAGR of 20%+.

(ii) Titan is also building long-term growth options, including carefully choosing its international foray and new businesses such as Taneira, which are likely to emerge as large value drivers in the next five years. Titan’s eyewear business is now on the path of profitable and sustainable high growth. (iii) We see the beginning of a strong growth phase, driven by network rollout (40+ outlets per annum), strong support from wedding sales, revival in watches, eyewear, and growth accretion from Taneira.

(iv) Perceived expensiveness is misleading and is merely a reflection of the “long duration of growth capture” that the market is willing to assign to winning business models such as Titan. On our framework, the market is pricing in 15-16% long-term earnings compounding, which is well within what Titan could deliver and will likely appear even less and less demanding as new businesses such as Taneira scale up.Reiterate Buy and lift TP to `3,050 from `2,900 as we revise our estimates and roll our valuation base forward. Third COVID-19 wave is a key risk.