Published on 29/10/2020 11:23:51 AM | Source: Yes Securities Ltd

Update On Titan Ltd By Yes Securities

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Decent revenue recovery across segments but jewellery margins under pressure; demand at risk of tapering down post festive period 

* Quarter highlights – 98% recovery of jewellery business (led by higher gold prices) and 89% recovery overall (some benefit of sharp gold price hike last July); margins sharply impacted by negative operating leverage, higher share of jewellery business, lower studded share and higher coin sales; 26cr rent waivers in other income; inventory levels stable given sales of excess gold worth 391cr; 34cr provision for overdue from one broker used for hedging; Montblanc JV ended; studded share of 26% vs 38% yoy; coin share of 14% vs 3% yoy; watches recovery rate at 55%; eyewear recovery rate at 61%; Caratlane grew 10%


* Hedge accounting impact – Retail sales is 96% of normal in value terms with 74% of normal footfalls; adjusting for hedges, it would be about 86% of normal; ineffective hedging expense of 484crs (which leads to an inflation in revenue) as company sold more than expected quantity and benefitted from second gold on lease moratorium; will come off dramatically as most pre‐pandemic hedging contracts are expiring by Oct‐Nov.


* Current trends in 3Q – Currently running at high single‐digit growth in first 10 days of festive season; Tier 2/3 towns have down much better than metro cities which have now started recovering; wedding segment has seen marginal growth given pent‐up demand; studded segment demand remains sluggish; aiming for 90‐100% recovery in jewellery business in 3Q and growth in 4Q; trying to maximize revenues even at slightly lower margins


* Studded/coins share – Recovered to 26% in 2Q from 18% in 1Q but still lower yoy, lower discounting than last year so no margin pressure on studded; coin sales remain strong with share at 14% vs mid single‐digits normally.


* Festive sentiment – Witnessing marginal growth in the ongoing festive season but uncertainty remains as company is trying to advance Diwali/Dhanteras sales to manage crowds better.  


* Store addition plans – Opened 14 stores YTD and will end up with 30‐35 additional Tanishq stores in FY21 with L2 preferred mode (opening smaller stores in smaller towns); no addition in watches; 25‐30 net addition expected in eyewear.


* Muted enrolment in Golden Harvest Scheme ‐ Lower enrolment will impact sales in 1QFY22, currently back to 85% of normal levels; looking at other schemes to create demand for next year.   


* Competition‐ Industry recovery in jewellery lower at 55‐70% indicating further market share gains; gold prices currently stable.


* Watches business – Muted recovery at 55% but sentiment improving with ecommerce doing well; will look at 100% normalization by 4Q‐end coupled with margin recovery; looking at growth in FY22 with stable margins.


* Eyewear business – Aggressive cost cutting initiatives have started driving turnaround with a 61% recovery rate in 2Q and positive EBIT.


* Hallmarking‐ Deferred to June 2021 which might be delayed further; will take time for the industry to fully comply.  


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