Near-term growth woes for Titan after strong jewellery-powered Q4

Product mix and salary reinstatement could put pressure on margins

Aided by a low base, Titan registered a sharp uptick in sales for the March quarter. While overall growth came in at 60 per cent, it is the jewellery segment that powered the Q4 performance. Sales in the segment were up 70 per cent due to a dip in gold prices and market share gains from regional players. The gains also included a 10 per cent contribution from a business-to-business (B2B) order for gold coins. Even if March sales (including B2B sales) is excluded due to the soft base, growth in the first two months (January and February) was still healthy at 32 per cent.

Another organised player in this segment, Kalyan Jewellers too reported a 60 per cent growth in sales in the quarter and 35 per cent growth in the first two months of the quarter. The company indicated that the revenue growth momentum was led by a meaningful shift in consumer demand from the unorganised to organised segment and there was an increase in footfalls across their store network.

Jewellery demand growth for Titan is expected to be strong in the current quarter as well given the marriage season, penetration into regional markets such as Tamil Nadu and expansion in FY21 which included addition of 26 stores and about 1.23 lakh square feet of space.

While volume growth should continue there could be some pressure on margins in the near term. This is due to lower mix of higher margin studded jewellery sales, reinstatement of salaries of mid and senior level employees and higher proportion of coin sales. Given the drop in customs duty, there could be some pressure due to higher priced inventory.

While the medium term outlook is strong, restrictions in certain states could peg back the recovery; Maharashtra accounts for 15-20 per cent of sales and lower footfalls could dent sales in the near term.  

Given the underlying demand, consistent growth and market share gains, Titan remains the top pick of most brokerages in the discretionary space. Any weakness in price could be an opportunity to buy from a long-term perspective.