Weak Q1 show due to curbs in key markets may limit upsides in Titan

Analysts expect hallmarking, recovery to aid market share gains for the jewellery retailer

The Titan Company stock was down over 2 per cent in trade as June quarter operational update points to weak revenue performance due to lockdowns. After steady sales in the first three weeks of April, the company shut most stores with a gradual reopening in June.

While the contribution of April and June was at 40-50 per cent each, May accounted for only 10 per cent of jewellery segment revenues in the quarter. What has pegged back sales in June was the extended lockdowns in key southern states of Karnataka and Tamil Nadu.

Jewellery revenue growth excluding bullion sales as compared to the year ago quarter was up 107 per cent due to low base, higher number of operating days in the recent quarter and better recovery. It was, however, down 62 per cent on a sequential basis.

Ashit Desai and Devanshu Bansal of Emkay Global Research peg the company’s June quarter revenues at Rs 2,800 crore as compared to Rs 7,470 crore in Q4FY21. Given the muted revenue performance they believe that the company will break even at the operating profit level but post a loss of Rs 57 crore in the quarter as compared to Rs 270 crore in Q1FY21. Other brokerages such as Prabhudas Lilladher Research, however, expect the company to report a profit of Rs 55 crore in the quarter.

The positive is despite a lower number of operational days in June as compared to last year, the company posted higher sales YoY for the month. The company is experiencing good growth in new customers; share of this segment in the overall mix has hit pre-pandemic levels. Given that 90 per cent of the stores have already opened and footfalls are higher than last year, recovery according to Emkay Global Research is expected to be faster than in FY21.

One trend which is expected to help organised players such as Titan is Jewellery Hallmarking. Analysts expect the implementation of hallmarking from June 16 this year to lead to industry consolidation, business disruption of smaller players and consumer focus on design and premiumisation. In addition to this, consumers may choose to convert ‘old jewellery’ to hallmark-compliant ornaments in FY21-23E, potentially driving consensus earnings upgrades in Titan and Kalyan Jewellers, say analysts at ICICI Securities.

Its other segments of eyewear and watches posted stronger recovery led by a higher level of walk-ins especially in May and June as well as increased proportion of days when the stores were open. While eyewear sales were up 117 per cent YoY, watches division grew by 280 per cent.

Though analysts at Prabhudas Lilladher Research led by Amnish Aggarwal have cut their earnings estimate for FY22 by 21 per cent they believe that this is a transition phase and the company is well placed to capitalise growth. In addition to gains from hallmarking, omnichannel strategy across jewellery watches and eyewear, what should drive growth are Caratlane, Titan Eye+, Taneira and entry into high growth segments such as over the ear headphones and Truly Wireless earphones.

While long term prospects are sound, analysts believe the 23 per cent increase in the stock price since May 4 and valuations at over 57 times its FY23 earnings estimates offer limited upsides in the near term.