Titan Company and Kalyan Jewellers reported strong performance during quarter ending September 2024. However, both stocks were trading over 2 percent lower in today's trading session. Titan Company stock opened at Rs Rs 3739 and touched intraday high of Rs 3748. The counter soon declined to low of Rs 3597 and was currently trading at Rs 3596 (at the time of publication of this report). Similar trend was witnessed in Kalyan Jewellers share price. Kalyan Jewellers opened at Rs 727 and touched high of Rs 729 before dropping to Rs 691. The stock was currently trading at Rs 696, down by almost 2.3 percent.

Key Financial Overview

Titan Company Ltd. has a market capitalization of Rs.3,25,818 crore as of October 2024, positioning it as a leading player in India's gems, jewellery, and watches industry. In FY 2023-24, the company reported a 26% increase in revenue, reaching Rs.51,084 crore. Its profit after tax (PAT) also rose by 7%, standing at Rs.3,495 crore. Despite the positive financials, Titan faces challenges in sustaining this growth, as evidenced by its high P/E ratio of 93.2, which suggests that the stock may be priced significantly above its intrinsic value.

Titan Company continues to exceed growth expectations, particularly in its jewellery segment, amidst fierce competition. With impressive year-on-year revenue growth and significant store expansions, the company is leveraging its channel expertise, premium brand focus, and cost-saving initiatives to sustain its momentum. Driven by robust demand and market strategies, Titan has witnessed notable outperformance in Q2, enhancing investor confidence. Several brokerages have maintained their 'Buy' rating on Titan, with upward revisions to target prices, underscoring the company's promising long-term growth prospects.

Strong Growth in Jewellery Segment Defies Competition

Jewellery segment shows significant growth in Q2:
Titan's jewellery segment registered a 26% growth in the second quarter, surpassing market expectations of 15%, according to Emkay Global. This follows a 9% growth in the first quarter, highlighting the company's resilience and ability to outperform in a competitive market. The reduction in customs duty on gold imports from 15% to 6% played a pivotal role in driving strong double-digit growth in the gold category, particularly plain gold products.

Key Investor Confidence and Stock Performance

Rakesh Jhunjhunwala’s largest stock bet:
Titan remains a significant stock in the late Rakesh Jhunjhunwala’s portfolio. His faith in the company’s growth potential has been validated by the company's consistent outperformance across its business segments, with particular emphasis on jewellery.

Brokerage firms maintain ‘Buy’ ratings:
Emkay Global, Centrum Broking, and Antique Stock Broking all maintain 'Buy' ratings on Titan. They have set target prices ranging from ₹4,327 to ₹4,485 per share, reflecting their confidence in the company’s strong execution and ability to maintain revenue momentum.

Retail Expansion and Store Network Growth

Continued expansion of retail presence:
During the quarter, Titan added a net total of 75 new stores, bringing its retail network to an impressive 3,171 stores across India. This includes 23 new store additions in the jewellery segment, with 11 stores under the Tanishq brand, 11 under Mia, and 1 Zoya store. This expansion strategy reinforces Titan’s market presence and enhances its ability to capture a growing consumer base.

Revenue Mix and Premiumization Strategy

Premium watch brands drive revenue growth:
Titan’s focus on premium watch brands and the broader theme of premiumization continued to fuel revenue growth. The company’s watches and wearables segment saw a 19% year-on-year growth, with analog watches alone posting a robust 25% growth, supported by both volume and value increases. However, the wearables category faced some challenges, experiencing a revenue decline in the low double digits, in line with the broader market downturn in this category.

Cost Initiatives Boost Profitability

War-on-Waste program enhances efficiency:
Titan has deepened its cost initiatives through its ‘War-on-Waste’ program, which is expected to drive further profitability by improving operational efficiencies. Despite a slightly weaker revenue mix in the high-margin studded jewellery segment, the company is well-positioned to meet its 12% EBIT margin target for the jewellery division in FY25.

Like-to-Like Sales and Consumer Demand Surge

Mid-teen like-to-like sales growth:
Domestic like-to-like (LTL) sales growth came in at mid-teen levels for Q2, a significant improvement from 3% in Q1. This surge was supported by increased consumer demand following the reduction in customs duty on gold and the launch of new collections and promotional campaigns, which attracted an 11% year-on-year growth in buyer traffic.

Analyst Outlook: Positive Long-term Prospects

Upward revision of earnings estimates:
In light of Titan’s impressive performance, brokerages have revised their earnings estimates upwards by 4-5%. Emkay Global and Centrum Broking both expect the company to maintain its revenue growth trajectory, aided by its competitive advantages in brand positioning and execution. Antique Stock Broking’s valuation of the stock at 60 times its projected earnings for 1HFY27 further underscores the belief in Titan’s long-term growth potential.

In conclusion, Titan Company’s robust Q2 performance and strategic initiatives have solidified its position in the market, enabling it to fend off competition and deliver sustained revenue growth across its business segments. Investors and analysts alike remain optimistic about the company’s ability to continue outperforming expectations in the future.

Current Stock Performance

Titan's stock performance has seen ups and downs throughout the year. On October 4, 2024, the stock traded between Rs.3,625 and Rs.3,753.80, closing at Rs.3,670.10. Over the past year, the stock has gained about 15.9%, largely driven by growth in its jewellery division and increased consumer demand. However, it has seen a dip in the last six months, dropping by nearly 3%. The stock's 52-week range highlights its volatility, with a low of Rs.3,055.65 and a high of Rs.3,886.95. Investors should note the potential risks tied to such fluctuations.

Price-to-Earnings Ratio

Titan's P/E ratio stands at 93.2, one of the highest in its sector. While this can indicate high investor expectations for future growth, it also raises concerns about the stock being overvalued. High P/E stocks often suggest that investors are paying a premium for expected future earnings, but such valuations can be risky if the company does not meet growth expectations. Titan's current valuation might limit upside potential, and investors may want to exercise caution.

Yearly High and Low

Titan's stock has been relatively volatile over the past 12 months, reaching a yearly high of Rs.3,886.95 and a low of Rs.3,055.65. This wide price range reflects both investor confidence and market apprehension in response to global economic trends and domestic consumer behavior. With the festive season approaching, demand for its jewellery and luxury products could potentially push the stock towards its higher price range, although risks remain from broader economic conditions.

Analyst Recommendations

Multiple analysts have weighed in on Titan's stock, offering varied opinions. A recent report by Jefferies maintained a Hold recommendation for Titan with a target price of Rs.2,650, signaling some caution on its overvaluation. This report, issued in August 2024, advised investors to be wary of the stock's high valuation and marginal upside potential. On the other hand, domestic research houses have been more optimistic, citing the company's robust business model, particularly in its jewellery division, as a reason for future growth. Investors should consider these differing perspectives before making any decisions.