Jewellery segment adds sheen to Titan's Q2 recovery even during shradh

Margins would, however, continue to be muted on lower studded ornament sales and discounts

Shares of Titan Company gained 4.5 per cent on Wednesday after the company indicated that business in the September quarter (Q2) had recovered significantly, especially for its bread-and-butter jewellery division.

In a quarterly update, the company highlighted that Q2 was on a par with the year-ago period, led by improving walk-ins. Conversion rates and average ticket prices, too, were higher on a year-on-year basis.  

Despite the inauspicious shradh period, Titan reported traction in the wedding jewellery segment. 

Higher sale of gold coins also reflected the rising consumer preference for the yellow metal as an asset class. The uptick in volumes during the quarter was led by the non-metros and tier-2 and tier-3 cities. 

Despite the pandemic, the company continued to expand and added 14 Tanishq stores, adding a total retail space of 60,000 square feet. 

Analysts at ICICI Direct Research believe the liquidity stress faced by unorganised players at the regional level, coupled with its own healthy balance sheet, will enable Titan to capture market share through healthy store addition. 

Brokerages expect sales in the jewellery segment to pick up as  restrictions get eased, especially in larger cities and once festival demand kicks in. An improvement in this division is key as it accounts for over 80 per cent of the firm’s revenues. 

While volume recovery is positive, profitability is expected to be hit by the lower sale of studded jewellery, which fetches higher margins. Analysts at Emkay Research expect gross margins to remain under pressure in the near term, due to the lower studded mix and higher discounts. With a higher proportion of sales coming from cities, and footfalls in malls still low, increasing the share of this segment in the jewellery pie could take time. 

Though recovery in the jewellery division has been sharp, the watch and eyewear segments are yet to see similar traction, with recovery pegged at 55-58 per cent of the year-ago quarter. Both segments have, however, saw some pick-up at the end of the quarter. After the business update, analysts at ICICI Direct Research revised their revenue and earnings estimates for FY21 upwards by 10-15 per cent.