Growth prospects remain strong for Titan after good Q4 performance

Titan posted better than expected revenue growth in the March quarter of the financial year 2022-23 (Q4FY23), powered by strong demand trends in the jewellery and watch segment.

Standalone jewellery sales for the firm were up 24 per cent year-on-year (YoY) on a slightly lower base and aided by like-to-like growth of 19 per cent. The company highlighted that new buyer growth was at 15 per cent while average ticket size was up 8 per cent. The four-year growth for the jewellery segment remains at a robust 24 per cent at the end of Q4FY23.

A positive in Q4 is the 29 per cent growth in the sales of studded jewellery on the back of promotional activity. The segment, which fetches higher margins, now accounts for 33 per cent of jewellery sales and is 100 basis points (bps) higher YoY. This is, however, still lower than the pre-pandemic levels of 37 per cent. The company continues to expand its network and has added 11 new Tanishq stores 

While sales were weak in March and in the first half of April on account of higher gold prices, demand picked up on account of Akshay Tritiya and related promotional offers. Going ahead, the company expects growth momentum to remain strong due to the wedding season. It has also maintained its 20 per cent annual growth rate over the next five years.

Jewellery segment margins, excluding bullion sales, expanded by 65 bps YoY to 13.2 per cent, which was better than estimates given better product mix (higher proportion of studded jewellery), strong growth of customers as well as ticket sizes and a recovery in wedding jewellery.

While jewellery and watch margins were robust, eye care margins disappointed due to one offs (payments to franchisee partners) and increased costs on account of store expansion. The company is focusing on volume-led growth in jewellery, given rising competition while superior mix and scale will help sustain margins, say analysts at Prabhudas Lilladher Research.

The company indicated that it would be able to maintain standalone jewellery margin at 12.5-13 per cent in FY24 as compared to 13.7 per cent in FY23. The firm does not have low cost diamond inventory, as was the case last year, while it has exhausted its gold quota available at concessional rates. The reduction in franchisee commission is, however, a positive for margins.

While long term drivers remain intact, PhillipCapital Research has cut its FY24-25 estimates by 6-10 per cent to account for increased competitive intensity on gold rates, deferment of demand on account of high gold price volatility and lack of advantage on account of diamond inventory gains.

Most brokerages have a ‘buy’ rating on the stock with the consensus target price of Rs 2,956 per share. From the current price, it indicates an upside of about 11 per cent.

Its performance track record and opportunities for market share gains, due to challenges faced by organised and unorganised jewelers, justifies it high valuations, says Aditya Kasat of Motilal Oswal Research. The stock is trading at 58 times its FY24 earnings estimates.