Titan: Retain ‘buy’ with TP of Rs 1,800; stock up 79% last year

Nonetheless with simply 6% market share of the jewelry market, Titan has a penetration-led progress alternative working into the subsequent couple of a long time, which makes Titan one in every of most tasty compounding tales in India client, in our view.

Hallmarking of gold jewelry turns into obligatory: The Authorities of India is making hallmarking (certification of purity) of gold jewelry obligatory from 15 June 2021 (earlier it was anticipated from 15 January 2021, however was delayed resulting from Covid-19). From 15 June, jewellers will have the ability to promote gold jewelry of licensed purity of 14, 18 and 22 carat. The Bureau of Indian Requirements (BIS) has been working a hallmarking scheme since 2000 and practically 40% of jewelry offered in India is presently hallmarked.

This transfer will scale back the market distortion on pricing: Within the absence of this regulation, buying and selling purity with disruptive pricing has been rampant in unorganised commerce, which has continued to trigger distortion in perceived market pricing of jewelry. Necessary hallmarking, in our view, will form the pricing behaviour of commerce, set off consolidation and scale back the synthetic hole in pricing between jewellers, making the worth proposition of organised jewellers resembling Titan extra interesting.

Market share achieve journey for Titan will speed up: Titan’s key structural attraction is the constant market share achieve alternative from the unorganised commerce (nonetheless practically 70% of the market). Over time, Titan has considerably enhanced its worth proposition (aggressive making fees, amount reductions, design led focus, compelling gold buyback costs) and is persistently penetrating deeper by means of its growth in Tier 2-3 cities. Its market share journey has been accelerating and proof of a powerful rebound in FY21 (regardless of Covid-19-related disruption) additional reinforces this. Necessary hallmarking now makes one other structural push to trade transitioning in the direction of organised commerce, the place Titan has a logical proper to win. Nonetheless with simply 6% market share of the jewelry market, Titan has a penetration-led progress alternative working into the subsequent couple of a long time, which makes Titan one in every of most tasty compounding tales in India client, in our view.

We retain a Purchase ranking: We retain a ‘purchase’ ranking and TP of Rs 1,800. Titan’s inventory has accomplished exceptionally effectively (up 79% final yr vs 68% return by Nifty50 index), and whereas FY23 PE of 52x might seem optically costly, it costs in long-term compounding expectations of c14%, which in our view is throughout the structural progress potential.

We anticipate jewelry gross sales can nonetheless compound round 17-18% yearly for a protracted time frame and Titan can be constructing new companies resembling Taneira, which may grow to be a really vital worth driver within the subsequent 5 years.