Titan PE@75: Is the Jhunjhunwala stock expensive or optically expensive?

Titan PE@75: Is the Jhunjhunwala stock expensive or optically expensive?

NEW DELHI: If you are one of those investors who start screening stocks based on the good-old PE (price to earnings) multiple, then a gem like

, which has gone up 300 per cent in 5 years, would probably never be on your radar. Big Bull Rakesh Jhunjhunwala’s largest bet has never been cheap and is now trading at a PE multiple of 75 post Q1 results in which its profit jumped 13 times to Rs 793 crore.

Given the massive underpenetration in the jewellery market, which is mostly unorganised, and the management’s ambitious growth target of increasing category sales 2.5 times by FY27, Titan bulls say although the stock’s near-term multiples appear expensive, its long runway for profitable growth warrants premium multiples.

The Tata Group owned luxury products retailer, which started as a watch manufacturer in 1984, now earns 88 per cent of its income from the jewellery business, 9 per cent from watches/wearables, 2 per cent from eye care and the remaining one per cent comes from other businesses that are currently small.

According to a report by

, Titan has a market share of just around 6 per cent in the jewellery market which is heavily dominated by small and unorganised players.

“Titan remains our top pick in the largecap consumption space in India, with strong earnings growth visibility and compounding ~20 per cent for an elongated period of time. Unlike other high growth categories, the competitive intensity from organised and unorganised peers in jewellery is considerably weaker. Expensive valuations in the near term will get burnt off by a rapid pace of growth,” the brokerage had said in a recent report.

After its Q1 report, the company management said it expects margin in the jewellery business to remain in the 12-13% range and the healthy margin improvement in watches and wearables (13 per cent EBIT margin) and eye care (~15 per cent EBIT margin) is likely to sustain. “This implies that these segments will no longer remain margin dilutive as feared,” the brokerage, which has a target price of Rs 2,670 on the stock, said.

Titan ended almost flat at Rs 2,446.70 on Monday and is up by over 13 per cent in the last one month.

likes the fact that Titan is gaining market share in a growing category. “A large part of consensus had dismissed category growth potential and believed Titan is a just share gain story in a shrinking market,” it said while giving a target price of Rs 2,700.

While marginally increasing its FY23/24 EPS estimates by 3.7/0.9 per cent, Prabhudas Lilladher has cut its rating on the stock from buy to accumulate post 26 per cent run up in stock price in the past 5 weeks. “We believe new launches in Taneira, wearables and Fastrack Prescription Eyewear can emerge as new growth drivers,” it said.

The increasing compliance around jewellery hallmarking could also turn out to be a major tailwind as it will drive out weaker players from the market.

However, not all agree with the investment thesis around Titan. For domestic brokerage

, Titan’s current valuation appears “too rich an entry point”. It has a target price of Rs 2,620 on the stock with a hold rating.

Securities believes that the lion’s share of the price tailwind Titan enjoyed over FY19-22 is over and most of the heavy-lifting from here on has to be volume-led, which could restrain growth rates, going forward.

It has a sell rating on Titan with a target price of Rs 1,900 per share.

The consensus recommendation from 31 analysts covering the Tata stock is a buy, shows Trendlyne data. The average target price, however, shows little upside potential of 8.6 per cent.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

(What’s moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

Download The Economic Times News App to get Daily Market Updates & Live Business News.

View Original Article

Free weekly Newsletter

A weekly breakdown of forecasts and trends

Enter your contact info to get The Financial Gambits VIP Newsletter for FREE.

We hate spam as much as you, if you dont like it just unsubscribe and we will never bother you again 


Learn how the spacial web will change the course of our lives and how to identify companies that show the most promise.