What's the Future of Multibagger Stocks Like Titan?

What do California's wildfires and Japan's stock markets have in common?

Well, nothing apart from the fact that both are examples of stark extremes that have taken everyone by surprise.

California had been devastated by wildfires for a decade. Long-term droughts had turned forests into dry tinder.

So, everyone was elated when 2017 brought one of the wettest winters California had seen. The record rain caused even desert towns to be covered in green. But when the green turned dry it caused wilder forest fires yet again.

Similarly, it took the Japanese Nikkei 30 years to get back to the levels seen in 1991. Between 1991 and 2021, the Japanese benchmark index languished below the 1991 peak.

The reason is simple to decipher. The returns in Japanese stock markets were so extreme from 1950 to 1990 that there was negligible upside left for subsequent decades.

Why am I recounting instances of extremes in nature and stock markets?

Well, because the behaviour of cyclicality in nature and the stock markets are very similar. And whenever the returns are steep or valuations extreme, there is a need to be sceptical about the future.

Just last week, I explained how Titan transformed itself from a failing business to a mutibagger.

So much so that the stock ended up being the jewel in the Tata crown.

Also, its returns over last two decades turned investors like the late Rakesh Jhunjhunwala into super investors.

But it is important to note that the contribution from the gold business (Tanishq) and the sharp spurt in gold prices have been instrumental in Titan's fortune.

Question is, can the stock of Titan continue to deliver irrespective of the upside in gold?

Also, does the business have enough steam to generate earnings growth when valuations are already steep?

Well, Titan has manufacturing and assembly plants at Hosur, Coimbatore (Tamil Nadu), Dehradun, Roorkee, Pantnagar (Uttarakhand), Chikkaballapur (Karnataka), and Sikkim.

The business is currently structured into the four verticals of watches, jewellery, eye wear, and others. Here, others include Aerospace & Defence, automation solutions (part of subsidiary - TEAL), fragrances, Indian dress wear, and accessories.

In other words, the company has enough capacity to keep the business scalable. It's also reasonably diversified to suit different consumption trends.

But the key source of earnings growth as well as profits has been only one - the gold jewellery business. Like I explained a few weeks ago, here the company has enjoyed a healthy premium over peers due to its gold quality certification since early days.

But in recent quarters, competition has started nibbling into Tanishq's profits. First of all, the premium charged by Tanishq on the gold price has declined by nearly 50% from historical levels. Plus, Tanishq is aggressively competing with retailers like Kalyan Jewellers, TBZ, Senco, GRT, Malabar Gold etc. in the top metro cities.

With its competition having moved to one-nation one-gold price, Tanishq may have to further finetune its pricing model.

To add to that, the firmness in interest rates may leave a very limited headroom for upside in gold prices.

But Titan does have other plans up its sleeves. These are expanding the scope of some of its newer businesses. It plans to grow its ethic wear business, which at present operates under the saree brand Taneira.

The company is eyeing 125 stores by FY27, along with an omni-channel presence. It aims to achieve more than Rs 10 bn sales by targeting young saree-wearing consumers.

Titan plans to expand the women's bags business under its popular watch brand Fastrack to Rs 10 bn by FY27. It aims to sell 3.5 million pieces in the same period.

Now, one look at the list of subsidiaries of Titan will tell you that the company has reasonable amount of intrinsic value waiting to surface.

The watch and gold businesses may, over time, occupy lesser proportions of Titan's embedded value.

Meanwhile, the company's ability to retain its premium valuations may continue to fluctuate wildly.

This maybe a case of extremes like in the case of the California forest fires or the Japanese indices.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Agora Research Private Limited (Research Analyst)