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Tough environment and high gold price impact quarter
Titan (TTAN) has released its pre-quarterly update for 1QFY20. Key highlights:
Jewellery: Growth impacted by higher gold prices
* TTAN delivered lower-than-targeted Jewellery sales growth of ~13% YoY in 1QFY20 on account of the tough macroeconomic environment and high gold prices (particularly in June). However, the company continued capturing market share in the segment.
* Akshay Tritiya – a day considered auspicious to buy gold – sales were robust. This festival was celebrated in the initial part of the quarter. In fact, the first half of the quarter was good in terms of sales, with 19% YoY growth till 7th May’19 (as mentioned in 4QFY19 earnings call). However, gold prices increased toward the second half, which, in our view, led to demand postponement, impacting segmental growth for the quarter.
* 12 Tanishq stores were opened during the quarter, with net retail space addition of 34k sq. ft.
* Tanishq launched Swayahm collection of both plain and studded jewellery.
* Mia launched ‘Birthstone Pendant’, ‘Facets’ and ‘Florets’ collections.
Watches: Decent sales growth partly aided by institutional order
* Watches division sales increased 19% YoY in 1QFY20, partly aided by a large institutional order from Tata Consultancy Services (TCS).
* The division saw its semi-annual activation in both ‘Titan’ and ‘Fastrack’ brands during the quarter.
* It added 10 World of Titan (closed 8), 5 Fastrack (closed 2) and 6 Helios stores (closed 1) in 1QFY20.
Eyewear: Activation drives growth
* Eyewear division also saw activation during the quarter, which helped achieve revenue growth of ~13% YoY.
* Growth in trade channel exceeded that in overall division in 1QFY20.
* It launched 27 new stores (and closed 9), adding 12k sq. ft. of retail space in 1QFY20 at the net level.
* Skinn – Delivered good growth in 1QFY20. To target new consumers, the company is now also focusing on small packs. E-commerce channel is witnessing strong growth rates for Skinn.
* Taneira – Opened its flagship store in Hyderabad in the villa format, taking the total store count for the division to five. The brand launched ‘1000 Summer Memories’ collection of cotton sarees at affordable price points to drive customer walk-ins.
Valuation and view
* Management stated that growth, particularly in the Jewellery segment, was lower than planned in 1QFY20. Consequently, we lower our EPS estimates by 2.7%/1.8% for FY20/21. We note that high gold price at the latter part of 1QFY20 led to postponement of demand, but the division should make a strong comeback in the rest of the year.
* We believe that TTAN’s high valuations are fully justified, given its (a) best topline growth visibility in the large-cap FMCG/retail space (20% CAGR in Jewellery, the largest segment, over the next four years), (b) prospects of continued EBITDA margin improvement because of high SSSG contribution and (c) sustained RoCE improvement from ~26% in FY19 to 34% in FY21. In fact, increasing concerns over revenue/earnings growth of many consumer peers should also ensure high multiples for TTAN. We maintain Buy with a revised target price of INR1,500.
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