Rakesh Jhunjhunwala Loved this Stock. Is it Right for You?

Titan Company has always been one of the favourite stocks of late Rakesh Jhunjhunwala.

Even after his demise, her wife Rekha Jhunjhunwala and the company's associates continue to remain bullish on the Tata group stock.

In the first quarter of FY 2023-24, Rekha Jhunjhunwala added 650,000 shares of the jewellery and watchmakers to her portfolio increasing the overall stake in the company to 5.36%.

Earlier this year, in February 2023, when Titan's share price rose from Rs 2,310 to Rs 2,535, Rekha Jhunjhunwala's net worth increased by over Rs 10 billion (bn).

However, the relationship between Titan and Jhunjhunwalas' is nothing new. Rakesh Jhunjhunwala, in the initial days of his investment journey, purchased Titan Company's share when the price level was around Rs 3 per share.

It was back in 2002-2003 and currently, Titan shares are trading at Rs 3,066.25.

Back to 2002

The Indian Warren Buffett - Rakesh Jhunjhunwala invested in Titan when the company was not doing well.

During the end of 2001, the share price of Titan tanked around 65% from around Rs 4 per share to Rs 1.4 per share.

Then in the beginning of 2002, the share price started rising and that is when Rakesh Jhunjhunwala invested in the company. He gradually increased his holding in the company and bought around 5% of the company's stake.

Out of his portfolio of 32 stocks, Titan constituted around one-third of the portfolio's entire valuation.

The stock price has since then surged over 1,000x .

Current stakes and valuations

After the demise of Rakesh Jhunjhunwala last year, the stakes he was holding were transferred to his wife Rekha Jhunjhunwala who was already holding around 15 million shares of Titan Company, which was around 1.69% stake.

Rakesh Jhunjhunwala's 3.85% stake in Titan was added to her portfolio last year making it 5.54% in the Q2 of FY2022-2023.

Currently, Rekha Jhunjhunwala holds a 5.36% stake in Titan Company whose net worth is Rs 145.9 billion (bn).

Rakesh Jhunjhunwala and Rekha Jhunjhunwala retained this Tata group stock in their portfolio since the beginning of their journey.

However, since the stock is trading at an all-time high, is it the right pick for you?

Let's find out.

Business Overview

Titan is one of the very few companies in India with hardly any haters. This Tata Group Company has been primarily known for its watches and wearables.

Titan Company was established in the 80s and since then has ruled the watches & wearables market.

The best part of the company is that it caters to every section. From luxurious brands like Xylus, or Nebula to mass-market brands like Sonata or Fastrack, Titan Company has it all.

Most people know Titan for its watches and wearables, but this company has other business segments that have garnered huge market demand as well.

Tanishq, one of the most popular jewellery brands in India is a brand under Titan Company Ltd.

Similarly, there is Zoya, a luxury jewellery brand, and more.

Titan is also present in the Eyecare business segment, with its products from Titan Eye Plus, Fastrack, and Glares.

The company is even present in the Indian Dresses segment as well as the Fashion Accessories and Fragrance segment.

In FY 2022-23, all the business segments of Titan performed well as the company invested in digital data and technology, supply chain management, retail networks and more.

This year, the watches & wearables segment of the company posted record sales, especially of smartwatches, which constituted 10% of their total revenue.

The company retained its position as one of the top five in the industry with its array of new Titan and Fastrack product launches in the previous financial year.

Revenue

Titan's revenue has doubled in the last five years. From 199,614.6 m in FY19, it went up to Rs 408,830 m in FY23.

Revenue (Rs M)
Particulars	FY23	FY22	FY21	FY20	FY19
Net Sales	405,750.0	287,987.0	216,438.2	210,515.4	197,785.2
Total Revenue	408,830.0	290,323.4	218,298.6	212,047.7	199,614.6

Data Source: BSE

If you look at the segment-wise revenue, the Jewellery segment contributed around 88% of the total revenue.

With new-age designs and high-quality products, Titan's jewellery business is leading the industry.

Watches & Wearables contributed around 8% of the revenue and Eyecare and others have contributed the remaining portion.

Another interesting factor to look at is that in FY 2022-23, the revenue of each of the business segments increased from the previous year.

Watches and wearables grew the highest at 42.8% while the Jewellery segment's revenue grew at 40.7%. Even the revenue of the Eyecare segment grew by 33.3% in FY23.

Profitability

For an investor, how profitable a business is matters the most, isn't it?

Titan's PAT increased by 49% in the previous financial year, which can be the main reason for Rekha Jhunjhunwala to purchase additional shares in the company.

Profitability (Rs M)
Particulars	FY23	FY22	FY21	FY20	FY19
PAT	32,740.0	21,969.5	9,791.0	14,926.6	13,886.5
EPS	36.6	24.5	11.0	16.9	15.8

Data Source: BSE

In the past five years, the company's profit grew by 136%, while the revenue grew by 105% indicating that the company, not only invested in its product development but also successfully reduced its expenditure, which led to this significant increase in the profits.

The Earnings-per-share (EPS) also increased from Rs 15.82 in FY19 to Rs 36.61 in the last financial year.

Valuations

The Price-to-earnings ratio (P/E ratio) of the company stood at 83.45 in FY23, which is way higher than the industry average of 17.71. This indicates that the company is overvalued at present.

Valuations
Particular	FY23
P/E Ratio	83.45
P/B Ratio	22.9

Data Source: BSE

Even its Price-to-book value ratio (P/B ratio) is higher than the median average. Titan's P/B ratio stood at 22.9 while that of its peers (median) was 1.4.

Return ratios

Titan has fared well when it comes to return ratios.

Returns (%)
Particular	FY22	FY23
RoCE	48.0	29.0
ROE	34.0	25.8

Data Source: BSE

In FY23, the RoCE of the company stood at 48% up from 29% in FY22 while its ROE surged from 25.8% during that year to 34% in FY23.

Increasing RoCE and ROE indicates that the company has been optimally using its resources and shareholder's equity, which is a plus.

Dividends

For the financial year 2022-23, Titan declared a dividend of Rs. 10 per equity share of Rs. 1 each in their Annual General Meeting (AGM).

The dividend payout ratio stood at 26.6% and the total dividend amounts to Rs 8.9 bn.

The dividend yield of the company is 0.33%, which is higher than the industry average of 0.29%.

Futures Prospects

Titan is fusing technology in every aspect of its business.

You may ask how it can integrate technology into its jewellery-making business, which indeed is something unheard of.

However, being a Tata Group company, Titan has come up with the World Best Quality (WBQ) methodology for integrating jewellery products CAD models and increasing its efficiency. The company is the first in the industry to adopt such a methodology.

They have increased their productivity by incorporating automation in their jewellery-making business and reduced manual errors.

In the Watch & wearables segment, Titan has introduced a Customised Manufacturing Execution System (MES), which helps them monitor important data and information across their factories.

Then their IoT system helps in integrating QR code scanners, legacy systems, and a lot more.

In the Eyecare division, they have been implementing analytics-driven customisation to bring the best to the customers.

Conclusion

Integration of technology seems to be working for Titan as its financials have significantly improved over the years.

The amount of effort and investments Titan put in their R&D is one of the main reasons for its continuous growth over the years and probably one of the major reasons Jhunjhunwalas never let go of this stock from its portfolio.

Apart from the company's input, the Indian market is also fuelling the growth, as India is recognised as the second-largest gold jewellery consumer.

Moreover, it has the potential to become the largest in the world given the rise in per capita income of the citizens. On the other hand, the market for smartwatches is expected to grow at a CAGR of 64.7% between 2023 and 2029.

Looking at the market potential and the continuous effort of the company, it seems to be a good investment, however, currently, the shares of Titan Company Ltd. are expensive, which investors need to keep in mind before diving in.

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