Emkay Global has reiterated its BUY recommendation for Titan Company with a revised target price of Rs 4,400, suggesting a 19% upside from the current market price of Rs 3,670. Titan's outperformance across most segments, particularly in the jewelry business, has driven positive revisions to earnings estimates. With a robust growth trajectory, especially in its core jewelry segment, Titan continues to be a market leader in the Indian retail sector, well-positioned to achieve its growth and margin targets for FY25.

Jewelry Business Drives Outperformance

Jewelry segment posts significant growth
Titan’s jewelry segment registered an impressive 26% growth in Q2 FY25, exceeding Emkay’s expectations of 15%. This surge is largely attributed to improved sales momentum, fueled by a 900-basis-point duty cut on gold. The company’s like-to-like (LTL) growth in jewelry climbed to the mid-teens from 3% in Q1 FY25, signaling strong consumer demand ahead of the festive season. Titan's plain gold jewelry witnessed high-double-digit growth, while studded jewelry saw low-double-digit growth. Despite a weaker mix from lower studded jewelry sales, the company is comfortably on track to meet its 12% EBIT margin guidance for the jewelry segment in FY25.

Festive demand likely to sustain growth momentum
Titan’s primary sales, driven by festive demand, played a crucial role in the Q2 performance, with the jewelry segment continuing to contribute the lion’s share to the company’s overall revenue. Titan's robust brand presence, particularly through its Tanishq and Zoya stores, provides a solid foundation for sustained growth, as consumer sentiment remains positive.

Watches Segment Shows Strong Recovery

Watches outperform expectations
The watches segment saw a 20% year-on-year growth in Q2 FY25, surpassing Emkay’s expectations of 15%. The growth was led by a 25% surge in analog watches, demonstrating strong demand for Titan’s premium offerings in this category. In contrast, wearables faced a decline in sales, reflecting broader industry-wide challenges in the wearables segment. However, Titan’s leadership in traditional timepieces remains a key driver of revenue growth.

Continued expansion in retail footprint
Titan added 18 new stores in its Titan World and Helios brands, contributing to its expanding retail footprint. The company’s aggressive retail expansion strategy, coupled with a strong brand portfolio, positions it well to capture additional market share in the coming quarters.

Eyewear and Emerging Segments Continue to Grow

Eyewear segment delivers steady growth
Titan’s eyewear division registered 6% year-on-year growth in Q2 FY25, in line with expectations. Although the growth is modest compared to the jewelry and watches segments, the company’s continued focus on expanding its product range and retail presence in eyewear supports steady long-term growth.

Caratlane and emerging businesses show strong performance
Caratlane, Titan’s online jewelry platform, saw an impressive 28% growth in Q2, improving from 18% in Q1 FY25. The company’s emerging businesses, including Taneira (ethnic wear), also reported 14% growth, indicating positive momentum in these nascent segments. Titan’s strategy of diversifying its revenue streams beyond core offerings of jewelry and watches continues to pay off.

Robust Financial Performance and Valuation

Earnings revisions upward
Titan’s strong Q2 FY25 performance led to a 4-5% upward revision in Emkay’s earnings estimates for FY25 and FY26. The company’s revenue is now projected to grow by 12.2% in FY25, reaching Rs 573 billion, with EBITDA expected to increase by 17.9% to Rs 62 billion. Titan's EBITDA margin is expected to improve to 10.9% in FY25, with further expansion to 12.1% in FY27, driven by higher sales in the jewelry segment and operational efficiencies.

Valuation based on future earnings potential
Emkay Global values Titan at 65x its expected earnings per share (EPS) for September 2026, arriving at a target price of Rs 4,400. Titan’s P/E multiple for FY25 is forecasted at 83.6x, dropping to 63.0x in FY26 as earnings grow. The company’s strong revenue and earnings growth, coupled with its market leadership and expanding retail presence, justify the premium valuation. With a free cash flow yield expected to increase to 1.3% by FY26, Titan remains a compelling investment for long-term investors.

Store Additions and Expansion Plans

Continued expansion across segments
Titan added 75 new stores across its business segments in Q2 FY25, in line with expectations. Key additions included 11 Tanishq stores, 18 Titan World stores, and 11 Caratlane outlets. The company's total store count now stands at 3,171, reflecting its continued focus on expanding its retail footprint to capture a larger share of the growing consumer market.

Strong presence in premium segments
Titan’s premium offerings, particularly through its Zoya (luxury jewelry) and Helios (premium watches) brands, continue to grow. These segments play a critical role in enhancing Titan’s brand equity and margin profile, helping the company differentiate itself in a competitive market.

Key Risks and Challenges

Jewelry margin sensitivity to product mix
While Titan’s jewelry segment remains its most significant revenue contributor, any unfavorable shifts in product mix, such as slower growth in studded jewelry, could impact margins. The company’s ability to manage this mix, especially in the high-margin studded jewelry segment, will be crucial in maintaining its margin targets.

Wearables segment under pressure
The wearables market is facing industry-wide challenges, and Titan’s performance in this segment has reflected these trends. The company will need to navigate these challenges to sustain growth in its overall watches segment, particularly as the wearables category becomes increasingly competitive.

Conclusion: A Strong Investment Case with Long-Term Growth Potential

Titan Company continues to deliver robust performance across its core segments, with jewelry and watches driving substantial revenue growth. The company's aggressive store expansion, strong brand portfolio, and operational efficiencies position it well for long-term growth. Emkay Global’s target price of Rs 4,400 reflects a 19% upside, underpinned by Titan’s leadership in the Indian retail space and its ability to capitalize on favorable market trends. Investors should consider Titan a solid investment opportunity with strong upside potential in the coming years.