Expanding Gold Jewelry Market Share, International Growth, And Operational Efficiencies Will Strengthen Future Prospects

Key Takeaways

• Expansion in gold jewelry and watches, alongside operational efficiencies, are driving sustainable revenue and margin growth.
  
• International growth, especially in GCC and North America, diversifies revenue and reduces dependence on India.
  
• Volatile gold prices, competition, supply chain issues, and changing consumer preferences could destabilize revenue and margins across Titan's jewelry and emerging segments.

Catalysts

Manufactures and sells watches, jewelry, eyewear, and other accessories and products in India and internationally.

• Titan is focusing on expanding market share in gold jewelry, which is expected to drive revenue growth due to the increasing formalization of the jewelry market in India. The company's strategy to rationalize gold rate premiums and focus on buyer growth in both gold and studded jewelry are expected to contribute to sustainable revenue growth.
  
• The strong growth in both premium and affordable watches indicates a successful product strategy and suggests potential revenue growth as the company continues to innovate and launch new products. This diversified product strategy is expected to stabilize revenue across different watch segments.
  
• CaratLane's revenue growth and improved margins, attributed to strategic product newness and cost management, suggest that continued focus on these areas could drive overall earnings growth for Titan.
  
• The company’s focus on achieving operational efficiencies, such as better sourcing and overhead management, as well as leveraging technology for customer engagement, could potentially lead to improved net margins over time.
  
• Titan's international expansion efforts, particularly in GCC and North America, which have shown exceptional growth, are expected to contribute to revenue diversification and overall earnings growth, reducing reliance on the domestic market.

Titan Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Titan's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.6% today to 8.8% in 3 years time.
• Analysts expect earnings to reach ₹71.7 billion (and earnings per share of ₹75.07) by about March 2028, up from ₹32.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 70.4x on those 2028 earnings, down from 84.3x today. This future PE is greater than the current PE for the IN Luxury industry at 21.9x.
• Analysts expect the number of shares outstanding to decline by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.9%, as per the Simply Wall St company report.

Titan Future Earnings Per Share Growth

Risks

• The volatility in gold prices and the significant increase over the past year could continue to impact gross contribution (GC) and EBIT margins, potentially making the revenue and profitability of the jewelry segment more unstable.
  
• The slow growth in Titan's emerging businesses and the flattish performance of Taneira suggest challenges in scaling new segments, which could impact long-term revenue growth and diversification of income streams.
  
• The intense competition in the jewelry segment, particularly around pricing and making charges, may put pressure on maintaining market share and potentially impact net margins.
  
• Supply chain challenges, particularly in securing gold at competitive rates, and the impact of international market dynamics could affect costs and, in turn, the company's earnings.
  
• Changing consumer behaviors and preferences, especially with the introduction of new players like lab-grown diamonds (LGD), may impact demand for traditional diamond jewelry, potentially affecting revenue.

Valuation

• The analysts have a consensus price target of ₹3755.206 for Titan based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹4400.0, and the most bearish reporting a price target of just ₹2833.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹817.9 billion, earnings will come to ₹71.7 billion, and it would be trading on a PE ratio of 70.4x, assuming you use a discount rate of 14.9%.
• Given the current share price of ₹3075.35, the analyst price target of ₹3755.21 is 18.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.