Titan stock emerges as a winner in a struggling sector: Here's why

Strong brands and online presence coupled with expectations of market share gains are key strengths

A couple of days after Titan declared its Q4 results, the market has latched onto the stock, pushing it to new highs. The dominant player in the jewellery and lifestyle segment was recommended by ICICI Securities, which gave a buy call with a target of Rs 1,705.

Titan has 9x the market cap of the second-most valuable company in the jewellery sector, (Rajesh Exports at Rs 15,500 crore). At a price of Rs 1,675, Titan has a market cap of Rs 1.48 trillion, which is in fact more than group company, Tata Steel, despite Tata Steel having over 6x the revenues of Titan.

Titan reported consolidated revenues of Rs 7,551 crore in Q4, 2020-21, which is 1.41 per cent lower sequentially versus Q3, 2020-21, and up 63 per cent YoY versus Q4, 2019-20. March 2020 was affected by lockdown, whereas March 2021 was before the second wave hit.

Titan’s Full Year 2020-21 revenues were about 3 per cent lower than in FY 2019-20. Profit after tax (PAT) was Rs 568 crore in Q4, up 7 per cent sequentially and up 65.5 per cent YoY. The PAT for the FY was Rs 974 crore, which was about 35 per cent lower than FY 2019-20. Essentially, more profits were registered in Q4 than in the first nine months combined.

The sector has interesting dynamics. Jewellers are major exporters, which contributes about 7-8 per cent of exports. It’s very sensitive to consumption demand and sentiment. People buy jewellery and watches only when they are feeling confident. This is in addition to the basic demand caused by weddings and festivals.

An expected recovery in the sector sounds optimistic given that the second wave has caused a trend of high mortality and job losses. The RBI Household Surveys also indicate that consumer sentiment is poor and households are pessimistic in terms of inflation and income growth expectations. Indeed, Manappuram Finance had to auction Rs 404 crore worth of gold between Jan-Mar 2021, to recover defaults in retail loans against gold. It only auctioned Rs 8 crore worth of gold in the first three quarters of 2020-21. This indicates the rise in household distress levels.

Hence, domestic demand may be muted in FY 2021-22, though there’s hope that exports could pick up. But Titan with its great branding, is expected to claw out more marketshare by servicing demand of weddings and festivals. Apart from brand building, Titan has a strong online marketing presence which allows it to showcase its inventory online and connect directly to customers via video calls. The online sales surged during lockdown. Jewellers can also add value and pass on rise in input costs such as a rise in the price of gold, silver and gems. Since gold prices are up, this should result in a bigger topline. Titan could therefore be a desert flower – a winner in a sector which is struggling.