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Blockbuster performance!

TTAN released its pre-quarterly update for 2QFY22. Here are the key highlights:

Strong recovery after the second COVID wave

* TTAN witnessed a strong recovery in demand, after the second COVID wave, across its consumer businesses, with sales growing swiftly above or close to pre-pandemic levels in most divisions.

* Most stores are now fully operational, barring a few in select towns facing localized restrictions, with overall store operation days exceeding 90% in 2QFY22.

* Apart from its thrust on digital and omni channels, TTAN also accelerated its Retail network expansion in 2QFY22.

Jewelry: Blockbuster performance

* The demand postponement triggered by the second COVID wave in avenues like gift purchases, occasions/milestone buying, weddings, investments in gold etc. witnessed a strong comeback in 2QFY22.

* The Jewelry segment reported a 78% YoY growth (excluding bullion sales). It clocked 32% CAGR on a two-year basis.

* Both Plain and Studded Jewelry segments grew in double-digits. However, a much stronger growth in the Plain segment led to Studded mix being below pre-pandemic levels.

* Digital Gold is a new pilot offering that helps customers purchase gold online and lock-in the gold prices, with an ability to convert it into Jewelry at a later stage. The early response has been good, with the enrollment of many digitally-savvy younger customers.

* Enrollments in the Golden Harvest Scheme (GHS) have surpassed prepandemic levels.

* The mandatory hallmarking of gold jewelry in 256 districts in India came into effect in 1QFY22. Tanishq and the other jewelry brands of TTAN are 100% compliant in all aspects.

* The Jewelry segment added 13 stores in 2QFY22, taking the total store count to 414.

Watches and Wearables: Rapidly recovering

* The Watches and Wearables division recovered rapidly in 2QFY22, with sales acceleration witnessed across all product brands. The sales growth momentum continued in e-commerce. The segment reported a 73% YoY growth.

* Walk-ins continue to slowly improve, with Malls/LFS at 65%/70% of prepandemic levels. Tier II cities are witnessing a better recovery in walk-ins compared to metros.

* Fastrack's launch of 'Fastrack X Coke' and 'Streetwear' collection was accompanied by the brand's foray into the fast-growing Smart Hearables category, comprising mid-premium range of Neckbands. It plans to expand its Headphones and Buds segments.

* The Watches & Wearables segment added eight stores in 2QFY22 taking the total store count to 789.

Eyewear: Recovered above CY19 levels

* The division posted YoY sales growth of ~74% in 2QFY22. On a two-year basis, the same stood at ~3% CAGR.

* The division's e-commerce push has progressed well, with the launch of Titan Eyeplus' App. Healthy growth was witnessed across all segments.

* Growth was driven by robust expansion in the Titan Eye Plus channel.

* The Eyewear segment added 24 stores in 2QFY22, taking the total store count to 629.

Other businesses

* Other businesses grew by 121% YoY in 2QFY22.

* Taneira: All 14 stores re-opened post lockdown and were operational for ~80% of the total available store days in 2QFY22 on an average.

* Fragrances witnessed a good recovery in Retail, department stores, and ecommerce.

* Accessories: Women’s bags continued to be a strong focus for the division, with high growth witnessed in e-commerce and entry into leading department chains.

* CaratLane: This business delivered 95% growth YoY in 2QFY22, continuing its strong growth trajectory. Omnichannel framework provides a versatile option to customers (like buy online, try-at-home, etc.).

It was suitably aided by new merchandise and marketing initiatives. Net two stores were added in 2QFY22, taking the total store count to 123.

Other points

* The financial performance of TEAL in 2QFY22 was subdued due to delay in execution and shipments, primarily caused by semiconductor shortages and logistics and travel restrictions, which are expected to ease in 2HFY22. TEAL’s sales declined by 43% YoY in 2QFY22.

Valuation and view

* TTAN’s strong sales growth (78% YoY excluding bullion sales) in the Jewelry segment is an outstanding performance.

Even on a two-year basis, it has delivered 32% sales CAGR, which is phenomenal.

This performance is driven by: a) stable gold prices over the past few months, b) pent-up demand, c) continued tailwinds in favor of organized players, d) robust consumer sentiment, and e) advanced wedding purchases.

* Stability in gold prices ~INR47k (~15% lower than the peak of INR55-56k in Aug’20) bodes well for consumer demand in the near term. With upbeat consumer sentiment, festive demand is likely to remain robust.

* Margin would be impacted in 2QFY22 due to lower contribution of studded jewelry. However, the strong topline growth would still drive sharp EBITDA growth.

* The structural investment case for TTAN remains extremely strong. We maintain our Buy rating, with a TP of INR2,460 per share at 65x Dec’23E EPS.

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