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Robust momentum with good festive period

Both Titan and Kalyan reported good demand prints in 3QFY22 update. Titan’s performance of 37% YoY growth in revenues was much superior to Kalyan’s (+17% YoY). Titan's new consumer recruitment and store expansion (+14 stores in 3Q) are key drivers for outperformance. Kalyan’s performance, though lagged that of Titan, needs to be seen in the context of (1) lower store expansion benefit (explained below) and (2) marginal negative impact of heavy rains / floods (impacting store operations) in Tamil Nadu and Kerala. We reckon Kalyan’s revenue performance for the first half of the quarter was better.

Both players have seen strong growth in Gold Savings Scheme enrolments. Another key aspect is both players have highlighted improvement in studded share which should augur well for gross margin expansion – with strong growth rates, EBIT margin print should also be good (operating leverage). We note that till last quarter both players were highlighting strong gains in the plain gold segment.

Kalyan for the quarter saw better growth in non-south markets which augur well for its margins (natural tailwind for Kalyan, benefit should keep accruing for few years). Secondly, Titan highlighted (1) strong gains from new customers and (2) good recovery in Tier 1 markets. Lastly, both brands Caratlane and Candere (in the modern casualwear segment) also continued to see strong growth rates of 64% and 35% YoY, respectively.

We also visited Tanishq’s and Kalyan’s stores in Delhi and Hyderabad which included Tanishq’s largest store in terms of revenue (refer below for details). We believe implementation of Jewellery Hallmarking (JH) can further accelerate formalisation (surprising consensus, once again); refer notes JH1 and JH2.

3QFY22 performance comparison

* The numbers: Titan and Kalyan reported robust (jewellery) revenue growth prints of 37% and 17% YoY, respectively. For 9MFY22, Titan and Kalyan’s revenue growth was ~58% and ~44% YoY, respectively.

* Store addition benefit: We believe Kalyan has a lower benefit of store addition in revenue growth versus Titan as it didn’t expand (store count) much during FY19-21. During FY19-21, Kalyan added only 3 stores in India while Titan added 66 Tanishq stores. We note that in last 12 months Titan added 31 new Tanishq stores while Kalyan added 14 stores in India. Kalyan has accelerated store expansion from this year, targeting to add ~21 new stores in FY22E (15 already added in 9M; 5 in 3Q). Of the 5 showrooms opened (in 3Q), 4 were in non-south markets. For 1H, 8 of the 10 stores opened were in south.

* Good growth in studded and other key trends: Both Titan and Kalyan have witnessed strong growth in studded, which augurs well for margins. We note that in 1HFY22, both companies highlighted growth in the plain gold jewellery segment (share gains from unorganized segment). Besides, Titan has highlighted (1) Both walk-ins and customer conversions were significantly higher compared to last year, (2) New buyer growth was higher than total buyer growth, (3) ticket sizes were ~15% higher than pre-Covid levels. We note that the entire retail industry is seeing higher conversions.

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