Market Update

Thursday, 9 February 2017

Mcx Market Tips; titan reaps benefits of client transition to organised retail

Titan reaps benefits of client transition to organised retail

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Titan BSE -0.81 % Company, India's largest jeweller, has reported a 14% increase in quarterly sales despite demonetisation-led headwinds.

The December-quarter results indicate that the government's demonetisation move and tightening of regulations, including putting a cap on cash transactions, are making customers move to more organised form of retail.
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In a call with analysts, the company's management said October sales growth was 40%, which dropped to low double digits in November and December post demonetisation. But sales growth in January picked up. With GST expected to be rolled out in the next few months and curbs on large cash transactions, the pace of shift to more organised form of retail is expected to intensify helping Titan gain market share.

Titan's largest business, jewellery, reported a 15.4% YoY growth and its watch business delivered a 5.1% growth, pushing up total sales by 14%. The company's EBIDTA margins improved by 54 bps to 9.6, improving its operating profit by 21%.

On Wednesday, the stock gained 7.4% post the results. The upward momentum is likely to continue.

Over the next two years, analysts ex pect it to deliver 17-18% sales growth.

Higher margins and cash flows will improve the company's return on equity. Rising gold price will also help in higher operating leverage.

The management said it will increase its number of stores, going forward, but focus will remain on increasing sales per square feet.This can lead to company's EBIDTA margins increasing from 9.7% in the first nine months of FY18 to 10.8% for the full year and 11.9% in FY19.

Based on these assumptions, the company can deliver 28-30% compounded growth over two years.Currently , the stock is trading at 33 times its FY18E earnings -higher than the 10-year average of 26.5. But in good times, Titan has commanded such high multiples.
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