PL Stock Report - Titan Company (TTAN IN) - Company Update - Eyecare – heading for a sustained growth - Downgrade to 'Accumulate'

Titan Company (TTAN IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs3,088 | TP: Rs3,242

Company Update - Eyecare – heading for a sustained growth

Quick Pointers:

§ Large unaddressed population and affordability offers huge scope to grow.

§ Increasing distribution, backward integration and high customer ratings (4.9/5) to enable sustained traction.

We conducted channel check of eyecare players to evaluate key success factors such as a) price b) in-store experience, c) after-sales support and d) store presence. We conclude that Titan Eye Plus (TEP) clearly stands out with high customer ratings (4.9/5.0) and superior customer value. We believe that TEP has huge scope of growth, as only 33% of people in need of eyecare (600mn) are using specs as of now. TTAN has cracked the Eyecare model with a 5 pronged strategy which includes a) retail expansion (1000 stores by FY24), b) in-house manufacturing of both frames & lenses, c) superior customer experience d) product innovation (Titan EyeX, Titan Ultima & Clear SightZ) and e) cutting edge communication. We expect eyecare business to achieve sales of Rs10.5 with EBITDA of Rs2.4bn by FY25. Based on Lenskart valuation of USD4.5bn, Titan Eye+ could be worth Rs126/share (Rs120bn) in valuation. While we remain confident of steady growth in Jewellery and Watches, we believe emerging businesses of Titan Eye+, Wearables, Caratlane and Taneira will provide an icing on the cake. TTAN currently trades at 58.0x FY25E EPS with 19.9% EPS CAGR over FY23-25. We remain structurally positive but cut our rating from BUY to Accumulate post recent run up in stock price.

Franchisee Model in Retail Expansion: TTAN has adopted franchisee model in Titan Eye+, which has created asset light business with just 20-25% of L1 stores. We believe this has enabled the company to ramp up stores to 901 in FY23 (599 in FY21) with an expected ramp up of upto 1000 by FY24.

Backward Integration in frames and lenses: TTAN has undertaken backward integration in both frames and lenses. It is ramping up frame/lens manufacturing to 8.0/16.0L in FY23 (1.3L & 4.1L/8.5L & 11.0L in FY21/22). This will increase in-house frame sourcing by 30% and support retail expansion.

Channel check suggests superior customer value: TTAN has been striving to improve its customer experience with innovative products, superior optometrists and in-store experience thus resulting in 4.9/5 rating. This along with strong customer stickiness/word of mouth will pay-off in coming years.

Multiple brands and product innovation: TEP has 3 in-house brands (Dash, Fastrack and Titan) and others (Vogue, Rayban, Stepper, Tommy Hilfiger, Dolce and Gabanna etc.) who straddle across price points. TTAN has been innovating with products like Titan Eye X (smart eyewear), Titan Clear SightZ (8-in-1 lenses for everyday use), Fog Free, Clear Sight, Neo progressives and Titan Ultima progressive lenses. We believe that wide consumer options under one roof will enable TEP attract customers across segments.