Motilal Oswal Positive On This Multibagger Tata Group Stock, Recommends Buy For 18% Upside

Leading brokerage firm Motilal Oswal has a positive outlook on Titan Company Ltd (TTAN), recommends "buy" for a target price of Rs 2,910 per share. According to the given target price, the stock can jump, giving up to 18% returns on investments if purchased stock at the current market price. Titan Company is a large-cap Tata Group Company, primarily involved in the manufacturing and sale of jewelry, watches, eyewear and other accessories and products.

Stock Outlook & Returns

The stock last traded at Rs 2,482.85 per share on NSE. Its 52-week high level is Rs 2,791, which is recorded on 31 October 2022 and its 52-week low is Rs 1,825.05, which was recorded on 1 July 2022, respectively. It has a market capitalisation of Rs 2,20,424 crore.

 
The stock in the past 1 week has fallen by 5.07%. Whereas in the past 1 and 3 months, it has fallen, giving 6.11% and 4.94% negative returns, respectively. It gave 5.33% positive returns over the last 1 year. In the last 3 years, it has given 113% positive returns, and in the last 5 years, it gave 198.11% positive returns, respectively.

Well set to achieve its five-year targets

Growth across segments has begun well for TTAN to meet its five-year targets as announced during its Investor day in May'22. Tanishq is performing extremely well. The management has deliberately taken a value focused approach, which is serving them well. Interestingly, it did not pass on the entire effective import duty increase of ~4.25% in Jul'22 to customers. In Jewelry, apart from Tanishq (core), there is a lot of excitement around Zoya (their luxury brand) and brands like CaratLane and Mia at lower price points (~INR25,000). Jewelry purchases in these brands are no longer occasion-led and annual demand can even be as high as five-to-six times.

In Jewelry, despite a change in the geographical mix, the management said there is a good possibility that the proportion of Studded sales will be back to pre-COVID levels. Adoption of Studded is rising even within Wedding Jewelry. South India, where TTAN has made successful inroads in recent years, is a relatively lower Studded market. The proportion of Studded sales in South India is still healthy at 25-26% v/s early to mid-30 levels for the rest of India. The Wearables business will be a critical driver of the targeted 20% CAGR in the Watches and Wearables segment. While TTAN was a late entrant in the Wearables business, the category is growing rapidly, with a strong innovation pipeline, led by strong domain experts hired for the Wearables business. The management has found a critical white space between super premium Wearables, led by global MNCs like Apple and Fitbit, and the cheaper options met by Chinese imports. Product returns from customers have reduced significantly.

While the healthy growth in overall revenue and earnings in the preceding five years is likely to continue over the next five years, the management indicated that expansion in return ratios is unlikely to be sharp in the first few years due to higher upfront investments. "We had highlighted the Balance Sheet as one of the key monitorables in our detailed note in Oct'22. Inventory days in the past couple of years have been higher than usual, partly due to the loss of sales for a few months in both years, but the management is hopeful that inventory days will return to pre-COVID levels by FY24 (and not FY23 as we were assuming earlier)," the brokerage has said.

Valuation and view

While there is no change to our forecasts up to the EBITDA level, there has been a reduction of ~3%/5% in our FY23/FY24 EPS as a result of higher asset intensity in the initial years of the five-year growth plan. TTAN remains an attractive investment case in the large cap Consumption space in India, with strong earnings growth visibility and compounding ~20% for an elongated period of time. In the Jewelry industry, which is seeing a wave of formalization, TTAN is clearly at the vanguard among organized players in leading this growth. Its runway for growth is long, with a market share of less than 10%. "Unlike other high growth categories, the competitive intensity from organized and unorganized peers in Jewelry is considerably weaker. Aside of our expectation of possibly slower growth in 3QFY23 on a very high base in the Jewelry business, there are no concerns beyond that, especially with the geopolitical situation stabilizing. Expensive valuations in the near term will be burnished by its rapid pace of growth. We maintain our Buy rating with a TP of INR2,910 (60x Sep'24 EPS)," the brokerage said.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.