Why Does Titan Company Limited (NSE: TITAN) Seem Attractive for Investment?

Titan Company stands out in 2022 despite the persistence of the pandemic and the global conflict at the beginning of the year. It experienced stupendous sales and financial growth overcoming macro-economic challenges. The company’s recent earnings report reflects robust sales and expansion, along with high expenses. From a technical point, Titan is witnessing Golden Crossover, which indicates bullishness. Despite providing superior ROE, the company seems overvalued compared to its peers at current levels.

Overview  

The Titan Company Limited (NSE: TITAN), a joint venture between the TATA Group and Tamil Nadu Industrial Development Corporation (TIDCO), is a Large Cap company that operates in the Gems and Jewellery sector. Commencing its operations in 1987 under the name Titan Watches Limited, Titan diversified into Jewellery (Tanishq) and eventually into EyeCare in 1994. The company is listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).  

Titan holds a market capitalization of Rs 239,169 crore. Its key products include Jewellery, Watches, Eyewear, and Precious & Semi Precious Stones, among others. As of June 30, 2022, the company has a total of 88.78 crores shares outstanding.  

Recent Share Price Insights  

• With the current price of Rs 2,703 as of September 14, 2022 (at the time of writing), Titan is hovering near its 52-week high, representing a one-year return of 27.51%.  

• In the last 17 years, only 3.18% of trading sessions of Titan experienced intraday gains of more than 5%.

• The stock reflects a 3-year return of 140.84%, significantly up compared to the Nifty 100 return of 63.5%.
• The stock’s 50-day simple moving averages (SMA) crossed its 200-day SMAs on September 13, reflecting the occurrence of Golden Cross. It indicates bullishness and occurs on the crossing of short-term moving averages over major long-term moving averages on the upside. 

Financial Snapshot  

In July, Titan Company reported its financial results for the quarter that ended June 30, 2022 (Q1 FY2023). The company recorded total revenues of Rs 8,649 crore (excluding bullion sales), up 199% YoY riding on triple-digit sales growth in all segments. Net profit and earnings per share (EPS) were Rs 793 crore and Rs 8.93, respectively, both significantly up on a YoY basis. Total expenses stood at Rs 7,939 crore, up 146% YoY. 

On segment-basis, Jewellery, Watches & Wearables, EyeCare, and Other Businesses recorded revenue growth of 207%, 158%, 176%, and 455%, respectively, on a year-over-year basis. Additionally, Titan Engineering & Automation Limited (TEAL) and CaratLane reflected YoY revenue growth of 35% and 207%, respectively, in the first quarter. 

Commenting on the strong quarterly results, Mr. C K Venkataraman, Managing Director of the Titan Company said, “the financial year has begun well for us and we delivered a strong performance in Q1 across our business segments. Despite challenging macro environment, the outlook for the remaining quarters looks positive and we continue to execute our investment plans in India as well as chosen international geographies.”  

Factors to Consider  

• Rebound in the Indian economy post-pandemic stoked the company’s financials.  
• Sales reflect a three-year CAGR of 20.5% in Q1 FY2023.  
• As of June 30, 2022, Titan Company had 2,160 stores, with the addition of 120 stores in the first quarter of 2023. 
• Product innovation and multiple brands provide growth opportunities.  
• The company is growing by leveraging technology, focusing on new regions, diversification, and retail expansion. 
• Rising costs on marketing and branding.  
• Superior customer service aids in retaining clients.  

Industry Analysis  

India is ranked first among the top exporters of cut & polished diamonds, and second in gold jewellery, silver jewellery, and lab-grown diamonds. The Indian Government is focused on export, driven by the potential for growth in the sector, with the upgradation of technology and skills to promote ‘Brand India’ overseas. In the coming period, increasing penetration of large established brands is expected to augment sector growth, along with government support measures. Among others, easing restrictions on gold import, the reintroduction of low-cost gold metal loans, and stability in gold prices at lower levels are likely to drive momentum in the industry. 

The Indian Government aims jewellery export valued at $70 billion in the next five years (until 2025), up from $35 billion in 2020. 

Peer Comparison

Titan Company seems overvalued at current levels when compared to its peers, but in terms of market capitalization and ROE, Titan Company ranks first followed by Kalyan Jeweller and TBZ. As a result, the stock can be considered an attractive investment.