Despite Q3 margin miss, Street remains positive on Titan's prospects

Analysts remain cautious about near-term consumption trend

Aided by festive demand and robust showing in jewellery sales, Titan posted a 22 per cent growth in revenues for the third or December quarter of financial year 2023-2024 (Q3FY24). Standalone jewellery sales, excluding bullion, remained strong at 23 per cent on the back of domestic demand and shipments to international subsidiaries. 

The company highlighted that festive-led gold purchases resulted in double-digit buyer growth for the quarter, while new buyer contribution was 50 per cent across all jewellery brands. The jewellery sales growth of 23 per cent was strong considering the challenging operating environment and higher competitive pressures. The price of gold was volatile and was up 16 per cent over the year-ago quarter (Q3FY23). 

Within the jewellery segment, India sales came in at 21 per cent. While retail sales (store revenue) was on the lower side at 16 per cent compared to 27 per cent in the September quarter (Q2FY24), like for like growth was at 10 per cent compared to 22 per cent in previous quarter. This was partly due to the impact on account of a shift in the Shradh period. The rest of the growth on India sales was accounted for by sales to franchisees.

Among the other categories, sales of the watch segment were robust at 22 per cent aided by the premiumisation trend. While sales of wearables grew 65 per cent year-on-year (Y-o-Y), those of analog watches rose 18 per cent. The eye care segment posted a decline, while ethnic wear and perfume categories – emerging businesses -- reported a 25 per cent growth. 

Even as jewellery sales growth in the quarter was strong, the sales of higher margin studded sales was soft at 14 per cent. The share of studded jewellery was down 200 basis Y-o-Y to 24 per cent. Say Mehul Desai and Sumanyu Saraf of JM Financial Research, “the business was also impacted by the shift in inauspicious days to October vs September last year and sharp swing in gold prices.” 

Apart from a weaker studded mix, the business also had to put in more money behind brand investments, consumer promotions, and gold-exchange programs in a bid to offset the adverse impact that the sharp swing in gold prices have had on consumer’s buying behaviour, says the brokerage.

These factors weighed on jewellery operating margin which dipped by 75 basis points over the year ago quarter while on a sequential basis it was down 185 basis points to 12.2 per cent. The jewellery segment reflected on the overall profit margins which was down 60 basis points Y-o-Y to 11 per cent compared to brokerage estimates of over 12 per cent. Other cost heads such as staff, advertising, and other expenses as a percentage of sales remained stable. 

Motilal Oswal Research has a ‘buy’ rating on the stock and models a 15 per cent annual revenue growth and an operating profit margin of 11-12 per cent during FY24-FY26. “In a slower consumption environment, the jewellery category is outperforming. We will watch the near-term consumption trend, but continue to like Titan for its best-in-class execution track record and its hunger to keep expanding the user base. Consumers’ preference towards branded jewellers will continue to keep the category growth rate at an attractive level,” say analysts led by Naveen Trivedi of the brokerage.

JM Financial Research expects the stock to continue commanding a premium valuation, more so given scarcity of ‘growth-businesses' in the consumption space at this point in time.