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Execution at its best

Growth opportunities in India (in consumption for sure) have been never under question. However, very few managements are able to translate opportunity to reality (and free cash flows). Titan is definitely* one.

*a dangerous word for a sell-side analyst to use!

Its good (3Q) performance highlighted important facets: (1) buoyancy in jewellery demand and formalisation underway (expected to further accelerate), (2) share gains in south with good margin profile, (3) confidence that growth will be a key driver for margin expansion (management has always been vocal on this and we agree) and (4) eye on long-term potential (exports, Carat lane, etc.). The confidence on eyewear business is pleasing – 1,000 stores by Mar-23E (~700 now). We believe the merits of jewellery hallmarking and the government’s strong intent (on this) are still under-appreciated (by consensus). Expensive valuations may limit near-term upsides though; retain ADD.

We believe mandatory hallmarking (JH1, JH2) will likely create a level-playing field in the Indian jewellery market, driving further formalisation. We expect jewellery hallmarking to lead to (1) likely traceability of raw material (gold), leading to potentially higher imports through formal route, (2) material business disruption for informal players in converting their inventory to hallmarked standards (necessity to melt and recreate ornaments), (3) opportunity for design-oriented brands to realise higher brand premium (versus commodity++) and (4) higher industry wide efforts to drive premiumisation (higher share of studded).

Strong growth in jewellery in 3Q: Jewellery revenue was up 37% on a YoY basis to Rs85.6bn (excluding bullion). Besides strong festive demand in Oct/Nov, the quarter saw (1) good recovery in customer footfalls (up 30%+) with stable ticket sizes and stronger growth in new customers, (2) good gains in the wedding segment (+40% YoY) partly led by its regionalisation strategy – Titan still has a lower wedding contribution than other jewellery brands and thus continues to present a key growth opportunity, (3) good growth in both studded and plain gold jewellery with studded ratio of 26% for the quarter, (4) strong (high double digit) growth in GHS enrolments. It added 14 stores (also entered into five new towns) in 3Q (store count of 382 stores in 231 towns, retail space of 1.47 mn sqft). It has a pipeline of 50 stores for next year and is confident of at least adding 35 stores.

Watches and Eyewear reported good prints, registering growth of 29% and 26% YoY, respectively. It highlighted (1) (on watches) 26% YoY growth for Titan and 35%+ growth for FastTrack and international brands and (2) (on eyewear) accelerated store expansion with 53 new (net) stores. The target is to expand eyewear store print to 1,000 by March-23 from 682 currently.

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