We believe that structural story led by consumer shift towards organized players, strong brand, growing store network and focus on high value studded and wedding jewellery is intact. We expected gradual recovery to set in from 3Q and expect Tanishq to achieve EBIT growth of 13.3% in FY20 and 28.5% in FY21. We expect watch business to show steady recovery with 14% EBIT CAGR over FY19-21 while Eyewear business will remain in investment mode. We estimate 23.5% PAT CAGR over FY19-21 and value the stock at 45xJune21 EPS. We advise Accumulating the stock in current weakness and retain BUY with a target price of Rs1173 (1264 earlier).
Given the recent headwinds, we revise our revenue and earnings estimates downwards for FY20, FY21E. A sustained increase in gold prices and weak consumer sentiments can lead to postponement of purchase, which may defer the revenue growth recovery in the near term. Titan has consistently displayed its ability to gain market share amid a tough industry scenario. Enriched jewellery portfolio with launch of new collections (wedding space) and sustained investment in brand building is enabling better than industry revenue growth. We model revenue and earnings CAGR of 17% and 24%, respectively, in FY19-21E. We maintain our BUY rating on the stock with a target price of Rs 1190 at 49.0x FY21E EPS (earlier target price of Rs 1250).
We have trimmed our earnings estimates for FY2020 and FY2021 to factor in lower than earlier expected growth in the jewellery business and lower than earlier expected margins. The spike in the jewellery prices and slowdown in the consumption environment will affect the performance of the jewellery business in the near term but themanagement is confident in recovering the performance in H2FY2020. We expect Titan’s revenue and PAT to clock a CAGR of 16.5% and 17.5% over FY2019-21. The stock has corrected by ~22% from its recent high which has factored in the modest performance expected in FY2020. We expect growth to accelerate in FY2021. We maintain our Buy recommendation on the stock with revised price target of R.s 1,260 (valuing it at 37x its FY2021E EV/EBIDTA).
View: Losing sheen. Downgrade to Accumulate. Titan’s net revenue grew 14.4% YoY to `49.4bn in Q1FY20, below our estimate. We believe the growth in the jewellery segment will remain muted (low double digits) in Q2FY20E. Nevertheless, we anticipate an increase in growth in H2FY20E, due to new store additions, customer acquisition, and anticipated improvement in overall economy. Also, as Titan is one of the largest players in the organized industry, with attractive products, we believe it will emerge as a winner of the shift from unorganised to organised. Further, the trend of buying jewellery for fashion, instead of investment, will enhance premiumization. To factor in the below-expected earnings in Q1 and slowdown in Q2, we have revised our FY20E and FY21E EPS estimates downward to ` 19.5 (-8.7%) and `23.4 (-5.8%). We downgrade our rating to Accumulate, with TP of ` 1,172 (50x FY21E).
We expect the near term demand scenario to remain muted as consumers usually postpone demand in such a scenario. Structurally, we remain positive on the long term story of demand shift from unorganized to organized sector, huge scope in store expansion and wedding jewellery and high value diamond jewellery segments. We estimate 31.6% PAT CAGR over FY19-21 and value the stock at 45xFY21 arriving at a target price of 1267. Maintain Buy
Factoring in the Q1FY20 performance, we revise our revenue and earnings estimates marginally downwards but remain positive about the long term prospects. We continue to like the company given the healthy balance sheet (32%+ RoCE & virtually debt free status) and sustained market share gains driven by healthy store additions. Titan’s strong brand equity enables it tooutperform industry peers and deliver consistent earnings growth amid a challenging industry scenario. We model revenue, earnings CAGR of 18.4%, 26.7%, respectively, in FY18-21E. We reiterate our BUY rating on the stock with a revised target price of Rs 1250 (49.0x FY21E EPS).
Maintain Buy with a revised PT of Rs. 1,320: We have reduced our earnings estimates by 7%/4%, respectively, for FY2020/ FY2021 to factor in lower-than-earlier estimated growth in the jewellery business and have tweaked our margins to factor in the change inrevenue mix. The jewellery division’s growth is expected to moderate to 15% in FY2020 (earlier expectation of ~19%). Other key divisionsare expected to deliver better performance with growth in mid-to-highteens in the near term. We maintain our Buy recommendation with a revised PT of Rs. 1,320 (in-line with reduction in earnings estimates).
We believe that TTAN’s high valuations are fully justified, given its (a) best top- line growth visibility in the large-cap FMCG/retail space (20% CAGR in Jewellery, the largest segment, over the next four years), (b) prospects of continued EBITDA margin improvement because of high SSSG contribution and (c) sustained RoCE improvement from ~26% in FY19 to 34% in FY21. In fact, increasing concerns over revenue/earnings growth of many consumer peers should also ensure high multiples for TTAN. We maintain Buy with a revised target price of INR1,500.
Maintain Buy with a revised PT of Rs. 1,375: We have increased our earnings estimates by ~3% and 6% for FY2020 and FY2021, respectively, to factor in higher- than-earlier-expected growth in the jewellery business. Management expects the jewellery and watches segments to deliver double-digit revenue growth in the near term and eyewearbusiness is expected to improve profitabilitywith scale. Taneira (handloom saree) and Skinn (fragrances) are expected to be big opportunities in the long run and will be one of the keyrevenue and profitability drivers by FY2023.Caratlane, subsidiary of Titan, is expected to be EBIT positive in FY2020. We expect Titan’s revenue and earnings to report a CAGR of 18% and 23% over FY2019-FY2021. We maintain our Buy recommendation on the stock with a revised price target (PT) of Rs. 1,375 (in-line with increased earnings estimates).