Downgrades, competition likely to keep Titan Company's stock under pressure

Titan Company released a disappointing pre-quarter Q1FY25 business update which has led to downgrades. Kalyan Jewellers, a key rival of Titan, did better going by its business update for Q1FY25. Analysts also pointed out that there will be increased competition in the space with the advent of Aditya Birla Group.

Titan reported sales growth of about 9 per cent Y-o-Y in Q1FY25. It added 61 stores during the quarter and its total retail presence (including CaratLane) stood at 3,096 stores at the end of Q1FY25. The domestic jewellery division grew 8 per cent Y-o-Y (ex-bullion) in Q1FY25 versus 19 per cent each in Q4FY24 and Q1FY24, with an increase in average selling prices. Buyer growth was in the low-single-digit. During Akshaya Tritiya, Tanishq's secondary sales saw double-digit growth Y-o-Y. Plain gold clocked high single-digit growth, while growth in studded jewellery was lower. Gold prices rose 20 per cent Y-o-Y, which hurt demand.

Tanishq opened a new store in Muscat (Oman). Domestic store additions stood at 33 with 11 stores for Tanishq, 19 stores for Mia by Tanishq and 3 stores for Zoya. The watches & wearables division grew 14 per cent Y-o-Y, driven by a 17 per cent increase in the analogue segment, despite a 6 per cent Y-o-Y decline in wearables. Comparatively higher growth was seen in Titan, Helios channel, and premium brands like Nebula, Edge, and Xylys.  Store additions included 17 new stores (5 Titan World, 5 Helios and 7 Fastrack). 

In the eye care division, growth in the domestic business came in at 3 per cent Y-o-Y. Titan Eye+ closed 3 stores during the quarter and opened a ‘Runway'. The premium sunglasses retail offering; launched its first store in Bengaluru in Jun'24.

In emerging businesses (fragrances and fashion Accessories or F&FA and Indian dress wear), Taneira's sales grew by 4 per cent Y-o-Y. It opened 4 new stores, including in the new cities of Jodhpur and Nashik. The overall F&FA revenue increased by 4 per cent Y-o-Y with fragrances higher by 13 per cent and fashion accessories rising by 15 per cent. CaratLane grew by 18 per cent Y-o-Y in Q1FY25 and added 3 new domestic stores during the quarter, taking the total count to 275 stores.

Kalyan Jewellers' pre-quarterly update for Q1FY25 reported consolidated sales growth of 27 per cent Y-o-Y with momentum across India and West Asia. The total store count was 277 with 217 Kalyan India stores, 36 Kalyan West Asia stores, and 24 Candere stores. The company plans to launch another 40 Kalyan showrooms in India, Rs 30 Candere showrooms, and its first showroom in the US by Diwali.

The India business grew 29 per cent Y-o-Y during the quarter, compared to 38 per cent in Q4FY24 and 34 per cent in Q1FY24. This was driven by single-store sales growth of 12 per cent despite demand being hit by gold inflation. Domestic store additions were at 24. Guidance is for a strong launch pipeline of showrooms. In West Asia, revenue grew 16 per cent Y-o-Y in Q1FY25, and West Asia contributed 15 per cent of consolidated revenue in Q1FY25. The digital platform- Candere recorded revenue growth of 13 per cent Y-o-Y in Q1FY25. The management says it will convert Enovate Lifestyles (Candere) into a wholly-owned subsidiary.

The industry will see higher competitive intensity with the launch of Aditya Birla’s Novel Jewels and Titan’s high valuations and disappointing business update could see the stock correcting with several analysts downgrading earnings.