Titan’s demand across categories was severely impacted in 1QFY21 due to the COVID-led nationwide lockdown. Topline declined 62% YoY to Rs. 19.8bn. The road to recovery remains hazy as weak consumer sentiment meets rising gold prices. Jewellery sales (ex-bullion sale of Rs. 6bn) declined 71% YoY to Rs. 12.2bn (HSIE: Rs. 10.5bn). Impact on profitability was even more severe across categories, courtesy unfavourable operating leverage. Titan reported a Rs 2.5bn EBITDA loss in 1Q – a first! We largely maintain our FY22 EPS estimates and arrive at a DCF-based target price of Rs 950/sh (implying 48x Jun-22 P/E). Note: DCF rolled over to Jun-21.
* 1QFY21 highlights: Jewellery sales (82% of sales) declined 56% YoY to Rs. 18.2bn. (including Rs. 6bn of Gold Bullion sales). Ex-that, Jewellery sales declined 71% YoY to Rs. 12.2bn underpinned by a severe volume loss courtesy the pandemic (grammage down 81% YoY). Note: Jewellery realisation is up 43% YoY, implying that there is likely to have been significant downtrading in jewellery purchases too in 1Q along with lower studded ratio (1QFY21: 18% vs. 1QFY20: 25%). GMs contracted 490bp primarily led by 1. Severe destruction in the Higher GM non-jewellery biz, 2. Lower studded ratio, 3. Lower-margin Gold Bullion sales. EBITDA losses for 1Q stood at –Rs.2.5bn (a first for Titan). Watches volume/revenue declined - 93/-89% YoY, and Eyewear declined 80% YoY in 1Q.
* Outlook: We expect a recovery in jewellery to be painfully slow as soaring gold prices act as gravity for jewellery demand in the near term. We build in revenue/EBITDA/PAT CAGR of 9%/8%/11% over FY20-23E. While Titan remains well-capitalised to ride through these tough times, the market share narrative may take a pause as other big-box jewellers resort to intense discounting to liquidate inventory. Hence, we maintain our REDUCE recommendation.
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