Buy Titan Industries; target of Rs 759: Prabhudas Lilladher
Prabhudas Lilladher’s research report on Titan Industries
We are upgrading TTAN from Accumulate to BUY as we increase FY18 and FY19 EPS estimates by 20?25%. This follows 68.5% PAT growth in 2Q18 led by 1) 49% grammage growth in jewellery 2) 260bps jewellery margin expansion 3) smart margin recovery in watches despite absorbing higher GST and 2% additional dealer discounts 4) market share gain in Jewellery and 100bps share gain in watches in LFS. We believe Tanishq is in a sweet spot led by 1) discounts on purchase above 75gms in wedding jewellery 2) discount on purchase exceeding Rs200000 in studded jewellery 3) activation campaign on recycling of old jewellery and 4) lower premium on gold prices which are reducing price gap with the competitionand 5) steady network expansion and brand building.
We estimate 29.5% PAT CAGR over FY17?FY20. We value the stock at 40xSept19 EPS and arrive at a target price of Rs759 (Rs580 based on 40xSept19 EPS earlier). Higher than expected margin expansion in both jewellery and watches can provide upside risk to our estimates. We expect premium valuations to sustain given strong tailwinds in jewellery business, strong balance sheet and steady improvement in other businesses. Upgrade to Buy.
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