Investment in digital transformation paying off now – Titan
Update on the Indian Equity Market:
On Monday, Nifty ended 2.5% lower at 11,222 mirroring sell-off in global markets due to rising coronavirus cases across the globe. Domestic investors remained cautious due to the passage of a farm bill as well. Among the Nifty50, TCS (+0.8%), INFY (+0.5%), and KOTAKBANK (+0.3%) were the only stock gainers. INDUSINDBK (-8.6%), TATAMOTORS (-7.8%), and HINDALCO (-7.2%) were the top losers. None of the sectoral indices ended the day in the green, and REALTY (-6.0%), METAL (-5.6%), and MEDIA (-4.8%) were the top sectoral indices to end with losses.
Edited excerpts of an interview with Mr. S Subramaniam, CFO, Titan Company with CNBC-TV18 on 18th September 2020:
• As of now, plain gold jewelry, wedding jewelry, and gold coins are still very much in demand. The recovery from an overall revenue perspective has been fine. The month of September will not see high sales due to the extended inauspicious period.
• In terms of revenues, the company is at about a 90% level on a year-on-year basis. Around 85-90 percent of stores are open but for shorter timings due to localized lockdowns.
• As far as diamond jewelry is concerned, the ratio will remain low this year as discretionary expenses are not taking off as expected. The company hopes to return to normalcy by 4QFY21.
• The industry is facing some serious challenges due to Covid-19, especially the smaller jewelers. Titan is witnessing higher market share, due to a strong balance sheet and strong brands.
• The high investments in digital transformation over the past years are now paying off. Videoconferencing has become a big way of attracting and connecting with customers. Some of the customers may visit the store to complete the sale but a lot of sales are happening digitally. These are the big competitive advantages of Titan.
• The studded jewelry caters to people who are unlikely to face job losses due to the pandemic. Discretionary spending doesn’t depend just on the income levels but also on the general mood and sentiment. In the current situation, most people are avoiding going out. They are waiting for better times when they can feel safe going out to buy jewelry.
• The recovery has been good, slightly better than what the company had anticipated. There are some worrying signs such as the unpredictable timing of normalcy returning, the vaccine is available for all, vaccine doses, which are slightly dampening.
• The cost-cutting measures have been implemented since December 2019, before the outbreak of the virus. The companywide initiative been doing very well. The measures start from discounts to customers, to franchisee pay-outs and every aspect is being looked at. Similarly, every element of fixed cost is also being looked at, including employee cost. The savings from the measures are coming in and assuming next year to be a normal year, will see a bump up in margins.
Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of Titan Company was ₹ 1,117/- as of 21-September-2020. It traded at 111x/ 54x/ 45x the consensus earnings estimate of ₹ 10.1/ 20.7/ 24.9 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 1,062/- implies a PE multiple of 43x on FY23E EPS of ₹ 24.9/-.
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