IGI Logo

Long term opportunity intact; Short-term headwinds though

4QFY21 - Jewellery revenue grew 70%, aided by return of (previously) postponed demand (wedding jewellery) and steep correction in gold prices driving consumption (upside trigger of gold price correction or volatility leading to surge in volumes still exists). Jewellery EBIT margin declined significantly by 330bps YoY to 10.9%, largely due to inferior product mix.

Further, near-term demand outlook is uncertain due to store shutdowns, however, we believe demand postponement in jewellery is higher (vs other 'perishable' discretionary consumption). We believe that Tanishq can strongly benefit from regionalisation strategy implemented in Tamil Nadu (market share gains seen) as similar strategy can be applied to other states where the brand is currently underpenetrated / underrepresented. Reiterate ADD

* Strong growth in jewellery:

Reported revenue / EBITDA / recurring PAT grew 61% / 32% / 48% driven by strong growth in Jewellery (growth of 70%, underlying retail growth of 32% in Jan-Feb, driven by double-digit growth in ticket size and invoices; volumes grew 45%). Studded ratio improved sequentially to 30% (37% in Q4FY20). Growth momentum in jewellery continued in first fortnight of April which got impacted due to store shutdowns (currently 50% of stores are shut). Store expansion remained muted – added 2 Tanishq stores in 4Q (total store count of 353 stores in 218 cities, retail space of 1.36 mn sqft). Watches and Eyewear were segments also recovered well with improving consumer confidence– watches (flat YoY), eyewear (+18% YoY).

* Margin performance:

Reported EBITDA margin declined 250bps YoY due to – (1) lower studded share in jewellery (at 30% versus 37% in Q4FY20), (2) higher gold coin sales (contribution of 5% in Q4FY21 vs 3% in Q4FY20), (3) B2B order (10% growth contribution to jewellery), (4) higher competitive pressure in jewellery segment likely leading to lower gross margins and (5) one-time impact of cut in customs duty on gold imports. Eyewear EBIT margin improved significantly to 18.1% (+1,640bps; lower discounts and better mix) while watches EBIT margin declined by 470bps to 8.3% (inferior mix).

* Other highlights:

1) GHS enrolments witnessed double-digit growth (digital customer adoption may drive faster growth), 2) Reported OCF / FCF of Rs41bn / Rs40bn (higher due to lower capex investment in store openings), and 3) working capital days was largely flattish.

* Regionalisation strategy:

Titan gained market share in Tamil Nadu driven by implementing 360-degree regionalisation strategy involving - 1) local brand ambassador, 2) inventory catering to regional culture, 3) aligning pricing of gold exchange policies with the region (as consumers are highly price sensitive in TN), and 4) network expansion. We strongly believe that a similar strategy can help Titan gain market shares in other states were Titan is currently underpenetrated / underrepresented.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer