Shares of Titan Company dipped 4.5 per cent to Rs 1,425 on the BSE in intra-day trade on Monday, falling 6 per cent in the past three trading days after the company announced its March quarter earnings on Thursday, April 29. The stock of the Tata Group Company was the top loser among the S&P BSE Sensex and Nifty50 indices, which were down less than 1 per cent, at 01:10 pm.
In Q4FY21, Titan Company continued to witness strong business momentum in the quarter and recorded revenue of Rs 7,110 crore (excl. bullion sale), growth of 61 per cent year on year (YoY), led by strong growth of 70 per cent in Jewellery division. The base quarter, Q4FY20, was weak due to lockdowns in second half of March. Profit after tax grew 48 per cent at Rs 357 crore over the previous year quarter.
However, on account of positive operating leverage and tight leash on operating overheads, Earnings before interest, taxes, depreciation, and amortization (ebitda) margins contracted 210 basis points (bps) YoY to 10.9 per cent. Earnings before interest, taxes, depreciation, and amortization (ebitda) margins improved 1059 basis points (bps) to 33.4 per cent against 22.9 per cent in Q4FY20 due to better product mix and improved operating leverage.
Margins were muted primarily due to lower gross margins in both Jewellery and Watch segments basically arising out of higher sale of lower margin products (lower studded share, higher coin sale, large institutional sale of gold coins, higher wearables sales), Titan said.
“Titan’s relative market share gain (in jewelry) doesn’t seem material as most big-box jewelers grew at a similar clip to Titan’s estimated 63 per cent YoY (adj. for bullion/ B2B sales). Jewelry margins stood at 10.7 per cent, courtesy an inferior revenue mix (higher bullion sales + lower studded ratio) and custom duty cut on gold. Non-jewelry recovered around 98 per cent of its base revenue (Rs 830 crore), but disappointed on profitability due to higher e-comm and lower margin product sales,” HDFC Securities said in results review.
However, analysts at Prabhudas Lilladher remain optimistic about jewellery division growth on back of market share gains from regional and small players, focused regional marketing campaign leading to market penetration, increase in studded jewellery contribution from 30 per cent in Q4 to normal 34-36 per cent levels, increase in online and Omnichannel sales led by expansion of Caratlane.
Though the near term may present a volatile demand scenario, analysts at ICCI Securities believe Titan is a structural growth story and appears to be a key beneficiary of the unorganised to organised shift in Indian jewellery market. Focus on market share gains and maintaining b/s strength (RoCE: 30 per cent plus) positions Titan as our preferred pick in the discretionary category. Owing to recent lockdown disruptions, we revise our earnings estimates downwards for FY22E and marginally tweak our estimates for FY23E estimates, the brokerage firm said in results update.