Premiumization And Innovation Set To Sparkle With Jewelry And Analog Watch Growth

Key Takeaways

• Strategic focus on premiumization and product innovation in watches and jewelry is expected to drive revenue growth and improve margins.
  
• Expansion plans for Tanishq, CaratLane, and Mia brands aim to increase market reach, leveraging consumer demand and stabilizing gold prices for higher sales.
  
• Titan's jewelry segment faces margin pressure from custom duty loss, competitive pricing, and the rising influence of lab-grown diamonds, posing risks to profitability.

Catalysts

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

• Titan's strategic focus on premiumization and product innovation in analog watches is expected to drive strong revenue growth in the coming years. This could positively impact overall revenues and margins, given the higher price points of premium products.
  
• The expected improvement in second-half margins for the jewelry segment, due to a better mix and CaratLane’s leverage on higher volumes, suggests future earnings growth. Stabilizing gold prices could also support this margin recovery.
  
• Expansion plans, with Titan aiming to add 40-50 Tanishq stores and significant growth in the CaratLane and Mia brands by year-end, are likely to expand market reach and drive higher sales growth, impacting overall revenues positively.
  
• The ongoing strength in consumer demand for wedding and festive jewelry, coupled with resolved uncertainties around gold pricing, points to robust revenue growth prospects in the near to medium term.
  
• Titan’s cautious approach to lab-grown diamonds while monitoring market trends may help maintain its premium brand perception, potentially safeguarding margins in the jewelry segment if not diluted by price-competitive products.

Titan Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Titan's revenue will grow by 12.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.0% today to 8.9% in 3 years time.
• Analysts expect earnings to reach ₹69.1 billion (and earnings per share of ₹72.57) by about November 2027, up from ₹32.5 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 76.1x on those 2027 earnings, down from 85.3x today. This future PE is greater than the current PE for the IN Luxury industry at 18.4x.
• Analysts expect the number of shares outstanding to grow by 2.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.31%, as per the Simply Wall St company report.

Titan Future Earnings Per Share Growth

Risks

• The jewelry segment experienced a 270 basis point drop in margins, attributed to one-time custom duty loss and a lower than expected studded mix, which could continue to pressure margins and net earnings.
  
• The demand for large carat solitaire stones in the studded jewelry segment has been adversely affected by price uncertainties and international demand-supply issues, which may further impact revenue and profit margins.
  
• Increased competitive pressure, particularly for studded jewelry pricing and the rising influence of lab-grown diamonds, poses a risk to Titan's market share and revenue in the jewelry segment.
  
• The guidance for EBIT margins in the jewelry business has been adjusted downwards, indicating potential ongoing challenges in maintaining profitability at previously expected levels.
  
• The consumer segment for lab-grown diamonds remains uncertain, and while no significant immediate threat is observed, a potential shift in consumer preferences could impact future revenues in the natural diamond market.

Valuation

• The analysts have a consensus price target of ₹3699.48 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 ₹5000.0, and the most bearish reporting a price target of just ₹2758.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹779.0 billion, earnings will come to ₹69.1 billion, and it would be trading on a PE ratio of 76.1x, assuming you use a discount rate of 14.3%.
  
• Given the current share price of ₹3119.95, the analyst's price target of ₹3699.48 is 15.7% 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.