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Strong growth momentum continues

TTAN released its pre-quarterly update for 3QFY22. Here are the key highlights:

Festive season brings cheer

* TTAN witnessed strong demand across its consumer businesses in 3QFY22.

* It clocked 36% growth over the festive quarter last year.

Jewelry: Upbeat festive demand drives solid performance

* Buoyancy in jewelry demand, driven by festive purchases in October and November 2021, helped the division achieve significant revenue for the quarter. The Jewelry segment reported 37% YoY growth (excluding bullion sales). Notably, this growth came on a high base of 22% growth in 3QFY20. It clocked a 26% CAGR on a two-year basis.

* Both walk-ins and customer conversions were significantly higher compared with last year. New buyer growth was higher than total buyer growth, driven partly by Tanishq's regionalization strategy of winning in focus markets.

* Ticket sizes were ~15% higher v/s pre-pandemic levels.

* Contribution from Tier-1 towns continued to improve, reaching prepandemic levels.

* Both the Plain and Studded categories saw strong double-digit growth. The share of Studded in the overall pie improved marginally vis-à-vis this period last year (3QFY21/2QFY22: 26%/30%).

* Golden Harvest Scheme (GHS) enrolments have seen high double-digit growth rates, driven by a strong buyer uptick.

* The Jewelry segment added 14 stores in 3QFY22, taking the total store count to 428. This includes two new stores in Dubai.

Watches and Wearables: Recovery on track

* The division saw strong growth momentum, with multi-brand channels (both online and offline) growing handsomely during the quarter – largely on the back of the Titan brand. The segment reported 28% YoY growth.

* The premiumization journey is enabling higher value gains.

* Sales from trade and large-format stores (LFS), in particular, clocked higher growth, followed by retail sales.

* Tier 2/3 towns fared better than metros.

* The Watches & Wearables segment added 20 stores in 3QFY22, taking the total store count to 809.

Eyewear: Robust growth in 3QFY22

* The division posted YoY sales growth of ~27% in 3QFY22. The division's strong growth was driven by Sunglasses and Frames, with a good demand uptick also seen in international brands.

* The division accelerated its growth journey via significant network expansion during the quarter. It added 53 stores in 3QFY22, taking the total store count to 682.

Other businesses

* Other businesses grew 44% YoY in 3QFY22.

* Taneira: It opened two stores (one each in Noida and Bengaluru), taking the total store count for the business to 16 across seven cities.

* Fragrances: The business witnessed good growth across retail and departmental stores during the quarter.

* CaratLane: TTAN continued to leverage its omni-channel offerings to achieve robust sales growth during the festive period. The Studded business as a part of the overall pie witnessed strong share gains. Growth was well-distributed, with strong momentum seen even across lower ticket sizes. In December, the company opened its first ever airport store in Bengaluru and went live with CaratLane's US website.

Other points

* TEAL: The Automation Solutions business has seen significant improvement over the previous year. It is showing encouraging signs in the market, with new orders coming in from various industry verticals and exports showing similar traction. The Aerospace business as well, while continuing to face challenges, is showing initial signs of recovery.

Valuation and view

* TTAN continues to deliver a solid performance, led by strong sales growth in the Jewelry segment (37% YoY, excluding bullion sales). Notably, it has achieved this on a base of 22% YoY growth in the segment during the base quarter. Even on a two-year basis, it has delivered a 26% sales CAGR, which is commendable. This performance is driven by a) upbeat festive demand, b) TTAN’s successful regionalization strategy, c) stable gold prices over the past few months, d) pent-up demand, and e) continued tailwinds in favor of organized players.

* At the same time, other segments – Eyewear and Watches & Wearables – are also posting healthy growth.

* The operating margin is likely to improve YoY in 3QFY22, led by a higher YoY contribution from the Studded Jewelry business. The strong topline growth would also drive EBITDA growth.

* The structural investment case for TTAN remains extremely strong. We maintain our Buy rating, with TP of INR2,950 per share at 70x Mar’24E EPS.

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