Jhunjhunwala's Rs 17,900 crore stock bet: Titan a 'Buy', 14% upside likely, says Motilal

Motilal Oswal Securities has retained its 'Buy' rating on Rekha Jhunjhunwala's biggest stock bet Titan Company Ltd after its interaction with the jeweller maker's management on subjects such as jewellery industry demand, rising competition, and the company’s growth strategy for its business segments such as jewellery, lab-grown diamonds (LGDs), and non-jewellery.

Rekha Jhunjhunwala owned 5.37 per cent stake in the Tata group firm as on December 31, 2023. That stake was worth Rs 17,931.18 crore as of Wednesday's closing price. With this, Titan was Jhunjhunwala's biggest portfolio stock in terms of value.

Motilal Oswal noted that the demand remained steady for Titan in January and February but the gold inflation in March has led to delay in demand, which is a typical trend in gold inflation months. While the company continues to expand its store network, it is also focusing on better execution at the existing stores (added 340 jewellery stores in the last two years).

"Titan has reduced the gold premium compared to peers in a calibrated manner, which has been compensated with other initiatives to protect operating margin. The management believes that jewellery EBIT margin of 12-13 per cent is sustainable despite rising competition. LGDs have seen success in many developed countries, yet TTAN is not sure it would participate in LGDs," it said.

Motilal Oswal said Titan expects to sustain healthy growth in the long term on the back of increasing urban population, rising consumer base (45-50 per cent new buyers contribution) and multiple jewellery brands for different income groups. It also cited fast-changing consumer preferences (unorganised to organised shift), scope of market share gain (still at 7-8 per cent), and rising women/young workforce behind its optimism.

Motilal Oswal said the company’s record performance has been driven by its early-mover advantage in the organised industry and consistent scale-up of business by being more agile in design and consumer engagement. Titan's jewellery and other businesses still have strong long-term growth potential. With a jewellery market share of 8 per cent in a sizable Rs 5 lakh crore market, there is significant headroom for growth for Titan, Motilal Oswal said. The gradual recovery in the studded ratio should support margin improvement, it added.

"We are cautious about the near-term consumption trend, but we continue to prefer Titan for its best-in-class execution track record and its eagerness to expand the user base. Consumer preference for branded jewellers will keep the robust growth rate intact for the category. We reiterate our BUY rating with a target price of Rs 4,300 (based on 65x FY26E EPS)," it said.