Titan - Caratlane Consolidation Positive But Earnings Dilutive: Prabhudas Lilladher

Prabhudas Lilladher Report

We cut our standalone FY24/FY25 EPS estimates by 1.9%/3.5% as Titan Company Ltd. will have to partly fund Rs46bn payout for 27% stake purchase in Caratlane.

We believe this acquisition is in the right direction for acquiring full control of largest omnichannel play in light jewelry segment in India with presence across 233 stores and area of 0.29 million. Caratlane reported full turnaround in FY23 with profit before tax of Rs 482 million and has shown a sales growth of 32.8% with 5.5% Ebit margin.

We believe Titan will be able to fully leverage growth prospects in light jewelry with omnichannel play in Caratlane. Titan is investing for future growth and presents a secular play on discretionary consumption with strong presence in jewelry (Tanishq, Mia, Zoya and Caratlane), watches (Titan, Fastrack and Helios), Eyewear (Titan Eye+) and also emerging in Wearables, dress material (Taneira) and accessories.

Demand trends in July remain strong across segments, which gives us confidence of pick up in margins over the coming quarters. Titan trades at 60.1 times FY25E EPS with 16.4% EPS compound annual growth rate over FY23-25.

We have assigned SOTP target of Rs 128/share for Caratlane (Rs 76 earlier) and assign a discounted cash flow based target price of Rs 3300 (Rs 3172 for standalone business and Rs128 for Caratlane) (Rs 3240 earlier – Rs 3164 for standalone and Rs 76 for Caratlane). Retain ‘Accumulate’.

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