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Strong jewellery, watches performance spurs robust operational performance - Titan Q2 results

ICICIdirect Research 07 Nov 2022 DISCLAIMER

What's Buzzing 

Titan reported strong sales growth in Q2FY23, which was driven by both buyer and ticket sizes with new buyer contribution continuing to be healthy at 50%. Improvement in studded ratio and positive operating leverage led to expansion of EBITDA margins with the company reporting its second highest EBITDA margins. 


The jewellery division (excluding gold bullion sale in both quarters) reported robust sales growth of 18% YoY to Rs 7515 crore (impressive three year CAGR: 27%). Share of studded ratio improved 200 bps YoY to 32% but was below pre-Covid levels (~37%). CaratLane (72% owned subsidiary), continues to scale up rapidly with sales growth of 53% YoY to Rs 448 crore. Watches segment reported 20% YoY growth to Rs 830 crore (three-year CAGR: 5%) whereas eyewear division reported 4% YoY growth to Rs 167 crore (three-year CAGR: 4%). Overall consolidated revenues (including gold bullion sale: Rs 482 crore) grew 22% YoY to Rs 9163 crore (I-direct estimate: Rs 8800 crore). Owing to better studded mix and benefit of higher diamond prices, gross margins expanded significantly by 260 bps YoY to 27.6% (I-direct estimate: 26.5%). EBITDA margins improved 70 bps YoY to 13.6% (I-direct estimate: 12.9%), with absolute EBITDA increasing by 29% YoY to Rs 1247 crore (I-direct estimate: Rs 1137 crore, three-year CAGR: 34%). PAT grew 30% YoY to Rs 835.0 crore (I-direct estimate: Rs 765 crore, three year CAGR: 39%). 

Our Perspective 

The revenue performance in Q2FY23 for consumption categories like jewellery and watches division was strong along with improvement in margin profile. Titan's regionalisation strategy in key focus market (regions where it has a lower market share than its national average) is bearing fruit with market share gains in regions such as South and East. The company is targeting aggressive expansion of retail footprint across all divisions to achieve its targeted revenue CAGR of 20% over the next few years with operating leverage expected to aid in maintaining positive bias in margin profile. 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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