Recommendation from Miscellaneous Sector

Recommendation from Miscellaneous Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

TITAN MAINTAINS ITS STAR-STUDDED PERFORMANCE 

Titan Company

HERE IS WHY

☛Market leadership position
☛Good financial performance
☛Visible growth prospects

Titan was incorporated in 1984 as a joint venture between the Tata Group and Tamil Nadu Industrial Development Corporation Ltd (TIDCO). It is a market leader in both its core segments, watches and branded jewellery. Titan’s brand portfolio includes Titan, Sonata, Fastrack, Raga, Xylys, Favre Leuba and Nebula for watches and Tanishq, Mia, Carat Lane and Zoya for jewellery. Titan has an overall market share of over 5% in the jewellery segment. Being a market leader in the jewellery segment through its Tanishq branded stores, it is expected to continue its better-than-industry growth.

Titan has outpaced revenue growth of other large jewellery retail players. Between fiscals 2016 and 2019, revenues grew at a compounded annual growth rate (CAGR) of 21%. Strong brand image and trust coupled with ability to provide wide range of designs and robust business model aided Titan’s growth. Over the last two years, Titan has also increased its pace of store additions in the jewellery segment from about 10-20 stores to 40-50 stores per annum and the same is expected to continue over the medium term.The management plans to add more stores that would be franchisee-owned, thereby reducing the fixed cost for the company and maintaining an asset-light balance-sheet. With the gold prices normalising and people accepting the prevailing gold rates, Tanishq would see even better revenue numbers in the coming quarter. It can be a key beneficiary as India’s gold market continues to strive towards regulation and standardisation. The company has consistently exhibited its ability to gain market share amid a tough industry scenario.The company maintains operating margins at 10-12 per cent on the back of industry-leading gross margins. Additionally, Titan’s revenue and profitability diversity has been improving on account of significant improvement in profitability of the watch segment.

Losses from new ventures like sarees (Taneira), etc. have not significantly impacted the overall profitability and some ventures may also turn profitable over the medium term as they scale up. Going forward Taneira may be a game-changer as there are not many organised players in the saree segment. Taneira would help Titan in adding more depth to wedding offerings as with Taneira and Tanishq, Titan would inch towards to becoming a complete wedding shopping destination.

On a consolidated basis, the gross sales have increased 10.53 per cent to Rs. 6454.58 crore in Q3FY20 from Rs. 5839.82 crore in Q3FY19. EBITDA showed an increase of 28.28 per cent to Rs. 7,584 crore in Q3FY20 from Rs. 5,912 crore in the same quarter last year. PAT for Q3FY20 stood at Rs. 4,746 crore as against Rs. 4,115 crore in the same quarter last year, showing an increase of 15.43 per cent.The company has posted good financial performance in the past. It has good return ratios too. The return on capital employed stood at 35.67 per cent for the last financial year, showing a year-on-year improvement. This implies that the company has been able to become more profitable with the capital it has deployed. By virtue of these factors, we recommend our reader-investors to BUY this stock.

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DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

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