Pandemic clouds near-term outlook; FY22-23e EPS down 5-8%; ‘Hold’ maintained
Titan reported 30-50% y-o-y growth in Ebitda & earnings with 2Y CAGR also strong at 20-25%. Jewellery business led revenue & profit growth and managed to gain share while other businesses were mixed. Series of initiatives are underway to navigate through the crisis but pandemic clouds near-term outlook, evident from the fact that just half of Titan’s jewellery stores are currently operational. Forecasting FY22 is particularly tough and we expect volatile trend.
Slight beat:
Titan’s Q4 Ebitda grew 32% y-o-y to Rs 8 bn – 4% ahead of our forecast. GM declined 850bps y-o-y due to inferior mix (inter/intra categories). However, this was offset by lower costs. Staff, advertising & other expenses saw moderate y-o-y change. Net earnings were up 48% y-o-y to Rs 5.3 bn, marginally ahead.
Good jewellery:
Reported jewellery revenues grew 70% y-o-y– the strong growth was led by a low base in March, underlying 32% retail growth in Jan/Feb and 10% growth contribution from a B2B order. Correction in gold prices also helped as grammage grew 45% y-o-y.
Jewellery margin:
Reported Jewellery Ebit margins at 10.9% was below our forecast (-3.3ppt y-o-y). While not exactly quantified, the lower margins were due to a few factors including lower studded mix (30% cf. 37% LY), loss from duty cut on gold imports, higher coin sales & low margins B2B order. As a result, segment Ebit grew 32% y-o-y.
Other segments:
Watch revenues remained flat y-o-y – the first two months witnessed c.10% y-o-y decline but a low base in March helped. Margins dropped 4.7ppt y-o-y – this was partially due to a high base of last year along with mix deterioration. E-commerce channel continues to see an increase in salience while metro & mall stores have seen better recovery in Q4. Eyewear revenues grew 18% y-o-y and better product mix, lower discounts and cost control led to an all-time high Ebit margin of 18% and Rs 230 m in Ebit.
Key management comments:
Heightened focus on B/S – tight working capital management; jewellery business sold gold received through exchange in the bullion market; higher salience of gold-on-lease etc. Lower gold prices benefited the industry demand although Titan gained share; competitive activity has gone up from national players, who have gained share from smaller players.
Earning downgrade:
We cut our FY22-23 earnings estimates by 5-8% to factor in the impact of the second Covid-19 wave and resultant lockdowns and store closures. Revise down PT to Rs 1,450 (60x FY23e); retain Hold.
