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Steady jewellery performance; wedding demand to spur Q4 revenues - Titan Q3

ICICIdirect Research 03 Feb 2023 DISCLAIMER

What's Buzzing 

Titan reported steady sales growth in Q3FY23, which was driven by a mix of both buyer and ticket sizes with improvement in new buyer contribution. The management highlighted that the company has witnessed strong growth on a three year CAGR basis for January and expects the momentum to sustain in February driven by wedding demand. 


The jewellery division (excluding gold bullion sale in both the quarters) reported robust sales growth of 13% YoY to Rs 10151 crore (on high base of 37% growth). On three-year CAGR basis, revenue growth continues to be impressive at 21%. Share of studded ratio remained flattish YoY (down 100 bps vs. pre-Covid levels) to 26%. CaratLane (72% owned subsidiary), continues to scale up rapidly with sales growth of 51% YoY to Rs 677 crore. Watches segment reported 14% YoY growth to Rs 811 crore (three-year CAGR: 8%), whereas eyewear division reported 12% YoY growth to Rs 174 crore. Overall consolidated revenues (including gold bullion sale: Rs 315 crore) grew by 16% YoY to Rs 11609 crore (I-direct estimate: Rs 11353 crore). Despite healthy mix, gross margins declined by 140 bps YoY to 23.9% mainly owing to higher base (the company had recorded inventory gains on diamond) and possible reduction in making charges owing to higher competitive intensity. Other expenses and marketing spends as a percentage to sales increased 76 bps and 28 bps YoY, respectively. Subsequently, EBITDA margins declined 280 bps YoY to 12% (I-direct estimate: 13.6%). Consequently, PAT de-grew 10% YoY to Rs 912.0 crore (I-direct estimate: Rs 1072 crore). 

Our Perspective 

Titan continues to be one the fastest growing discretionary companies (three year CAGR: 23%) in our retail coverage universe. Robust performance in challenging times reaffirms our thesis of long term market share gains for Titan. It has, over the years, withstood challenges and emerged as a resilient player. Sharp rise in gold prices and slowdown in discretionary demand could pose challenges in the near term but long term story remains intact with the company aspiring to grow jewellery revenues by 2.5x by FY27 (implied CAGR: 20% from FY22 base). We believe Titan is well placed to continue to gain market share from unorganised players and recent regulatory changes like compulsory gold hallmarking is likely to accelerate the pace of market share gain for organised players. We expect revenue and earnings growth trajectory to be strong from here on. Robust business model (30%+ RoCE) and strong earnings visibility will enable Titan to sustain its premium valuations, going forward.

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