Titan's Q3 update: 22-23% growth in jewellery sales, strong store expansion

Store additions also looked healthy, with 21 net new Tanishq stores opened in Q3, taking the total Tanishq count to 466 (+43 in 9 months of FY24)

Titan’s October-December quarter (Q3) business update claims 22-23 per cent revenue growth in the standalone jewellery sales (excluding bullion sales), implying a 4-year compounded annual growth rate (CAGR) of 21.3 per cent. Store additions also looked healthy, with 21 new Tanishq stores opened in Q3, taking the total count to 466 (+43 in 9 months of FY24) including 2 in the US and 1 in Singapore. Titan added 90 stores in Q3, pushing its total retail outlets to 2,949 stores (including Caratlane). Mia opened its first store in Dubai, taking its international footprint to 14 stores.

The jewellery revenue was around Rs 11,700 crore, led by 21 per cent year-on-year (Y-o-Y) domestic growth. The implied CAGR is at over 21 per cent – this is the third consecutive quarter of over 20 per cent growth. Plain gold jewellery and coins grew faster than studded pieces. The standalone jewellery Ebit (earnings before interest and tax) margin will be flat Y-o-Y at 13 per cent, with the impact of lower studded sales, rationalisation of gold rate mark-ups and higher consumer offers offset by better operating leverage and lower franchisee commissions. Consolidated net sales should grow by 25 per cent Y-o-Y in Q3FY24.

Management pointed to continued investments in exchange programmes and consumer offers. This, coupled with the rationalisation of gold rate mark-ups and lower studded share, will squeeze margins. But operating leverage and lower franchisee commissions may compensate. Titan highlighted that improvement in average selling price is moderate but buyer growth has been quite healthy, in double digits.

The watches and wearables range also grew by around 23 per cent Y-o-Y, but eyewear had a muted performance with a 3 per cent decline. Taneira’s sales grew 61 per cent Y-o-Y across the wedding season and it opened 11 new stores. There was a 30 per cent CAGR in CaratLane. The Fragrances/fashion accessories also declined by 9 per cent Y-o-Y. CaratLane grew 31 per cent Y-o-Y, driven by the season's new collections, wedding gifting curations, and the first-ever 'mangalsutra' campaign and CaratLane added 16 new domestic stores during the quarter, taking the total count to 262 stores.

Titan's long-term prospects come from a relatively low market share (estimated 7 per cent share) in a large addressable market which is still mostly dominated by unorganised players. It has managed to deliver customer base expansion, enter regional markets, especially Tamil Nadu, exploit the wedding segment, and establish a foothold in the international market, high-value segment and create an omni-channel presence. One potential risk lies in the greater adoption of lab-grown diamonds which could pose competitive risks.

Jewellery demand has been strong despite high volatility in gold price (up 3 per cent quarter-on-quarter or Q-o-Q and 16 per cent Y-o-Y), higher number of Shradh days and flash floods in Tamil Nadu where retail sales were impacted by a week. In the medium term, jewellery may outperform other consumer discretionary segments due to inelastic wedding purchases, and perception of gold as an investment asset.

Analysts have raised their consensus target prices and valuations after the update. Although the stock closed flat, the leading indices were down a per cent on Monday. Valuations seem to range from around current price (Rs 3,710) to around Rs 4,300.