“Titan’s market share gain story intact”- S. Subramaniam, chief financial officer, Titan Co. Ltd.

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.42% higher at 12,016. Infratel (+3.5%), Sun pharma (+3.4%) and IndusInd Bank (+2.8%) were the top NIFTY50 gainers. UPL (-7.8%), Yes Bank (-3.6%) and GAIL (-3.5%) were the top NIFTY50 losers. Among the sectors, NIFTY METAL (+1.1%), NIFTY REALTY (0.9%) were the sectoral indices that closed positive. NIFTY PSU banks (-1.5%) and NIFTY AUTO (-0.2%) were the worst performing sectors.

Excerpts from an interview with S. Subramaniam, chief financial officer, Titan Co. Ltd broadcasted on CNBC on 7^th November 2019.

• June onwards it has been really tight and the entire industry has been in turmoil. As far as are we are concerned, our market share gains story is intact but it is unfortunately in a very declining jewellery market.
• Even from Dussehra to Diwali, which is the festive season, for 33 days they have grown 10%.
• They are in tough times. Gold prices have been high but, importantly, consumer sentiment has not been encouraging. consumers are trying to save money. They don’t want to invest too much.
• Gold coins sales being little higher, which means that people who are investing in the category also are looking at it more from the savings perspective rather than actually spending money on jewellery as adornment.
• They are now looking at 11-13% growth in second half. They also have a higher base but 10% in the festive season was not bad at all under the circumstances.
• Typically when gold prices do go up there is pent up demand when it comes to the wedding part of the segment, people do have to finally end up investing. So, to some extent we could see a shift on a month-on-month or quarter-on-quarter basis.
• Even the millennials when they get married, they have exactly the set of jewellery that otherwise would have been bought and if anything the design quotient is much higher these days.
• They have seen east do quite well, they have seen south do relatively quite well, but the region that gets impacted the most has been west.
• FY20 is expected to be a fairly bad year. They are not going to meet their 20% target and they have given that guidance also now. Their goal for the next six months is 11-13%.
• One of the biggest drivers in the last three years has been the gold exchange programme. Today it accounts for almost 40% of the revenues. They need more growth drivers like that.
• They do not want to have any quarter where they have less than 10% margin. They are well within their own internal plans as far as the margin for the watch business is concerned.
• They are trying to even it out better than having 18% in the first half and then going down to 7-8% in the second half. So, in FY20, we should look at second half to be more than 10%. So, it is a conscious decision and, therefore, it is not really a fall.

Consensus Estimate (Source: market screener and investing.com website)

• The closing price of Titan was ₹ 1,166/- as of 7^th November 2019. It traded at 63x/ 48x/ 39x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 18.6/ 24.4/ 29.7 respectively.
• Consensus target price of ₹ 1,246/- implies a PE multiple of 42x on FY22E EPS of ₹ 29.7/-.