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Titan Q4FY22 Review: One-offs impact performance; outlook remains buoyant

ICICI Securities 05 May 2022

What's Buzzing

Titan's Q4FY22 earnings print was below our/consensus estimates as a significant increase in other expenses impacted EBITDA for the quarter. Losses in the watches and eyewear segment (owing to exceptional expenses) were a drag on margins.

Context

Titan's jewellery division’s revenue growth trajectory disappointed on account of dual impact of Omicron variant in January and a sharp rise in gold prices in March. Q4FY21 also had a large B2B order of gold coins (~Rs 400 crore). Adjusted for the same revenues remained flattish YoY. Consolidated jewellery revenue grew 3% YoY to Rs 6843 crore (I-direct estimate: Rs 6530 crore). The beat was mainly on account of higher gold bullion sales worth Rs 375 crore (vs. Rs 25 crore in Q4FY21). Watches division reported 12% YoY revenue growth to Rs 625 crore, mainly led by pricing growth. Eyewear division reported 6% revenue growth to Rs 134 crore. Overall revenue grew 4% YoY to Rs 7796 crore (I-direct estimate: Rs 7480 crore). EBITDA margins declined 70 bps YoY to 10.2% (I-direct estimate: 11.4%). On the segmental front, EBIT margins for the jewellery division improved 47 bps YoY to 11.2% while watches segment reported EBIT loss of Rs 35 crore vs. EBIT profit of Rs 38 crore in Q4FY21. The company reported an exceptional expense worth Rs 53 crore, which pertained to introduction of Voluntary Retirement Scheme (VRS). Subsequently, PAT de-grew 7% YoY to Rs 528.0 crore (I-direct estimate: Rs 562.5 crore).

Our Perspective

We believe the below par performance in Q4FY22 is a one off event and has been impacted by Omicron in January and a sharp rise in gold price in March with profitability being impacted due to exceptional expenses. On the demand outlook, the management indicated that demand trends in April 2022 have been encouraging and are in line with the company’s growth ambition. The management is hopeful of a strong wedding season, which would aid revenue growth. Also, studded sales ratio increased 400 bps YoY to 34% and is inching closer to pre-Covid level of 38%, which augurs well for margin improvement. We believe Titan is well placed to continue to gain market share from unorganised players. 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 hereon. 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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