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Titan: Below par Q4 print a temporary blip in structural growth story...

ICICI Securities 07 Apr 2022

What’s Buzzing

After two successive quarters of strong revenue growth, Titan’s jewellery division revenue growth trajectory disappointed on account of dual impact of Omicron Covid variant in January and sharp rise in gold prices in March owing to external geo-political conflict.

Context

Overall standalone revenues declined 3% YoY in Q4FY22 with jewellery revenues declining 4% YoY (5% YoY growth excluding bullion sale and sale of gold coins in base quarter). The revenue growth was below consensus estimate (15-17%) mainly owing to decline in gold jewellery, which has borne the brunt of a sharp rise in gold prices probably due to demand deferral. Superior performance of Titan’s digital arm ‘Carat Lane’ was the key positive during the quarter as it registered YoY revenue growth of 51%. The underlying demand continued to be strong across all its businesses with most segments posting YoY growth over a very strong Q4FY21 base. Watches, eyewear and other businesses registered YoY growth of 12%, 5% and 23%, respectively.

Our Perspective

We believe the below par revenue performance in Q4FY22 is a one off event and has been impacted by Omicron in January and sharp rise in gold price in March. The management, in its pre quarter business update, highlighted that underlying demand trends continue to be strong as indicated by Golden Harvest Scheme enrolments, which witnessed double digit growth rates. Also, studded sales clocked high single digit growth, which augurs well on the margin front. Further, the network expansion and campaigns have continued to progress well in anticipation of an upbeat Q1FY23, which is expected to be normal after a gap of two years of lockdowns in the same period. We believe Titan is well placed to continue to gain market share from unorganised players and recent regulatory changes like compulsory gold hallmarking are 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 are expected to enable Titan to sustain its premium valuations, going forward.

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