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Demand growth continues in Q4 Titan Co. Ltd. manufactures and retails jewelry and watches.

The Company also produces perfume for men and women.

• Titan’s revenues surged 59.0% YoY, mainly driven by Jewellery division (+71.3% YoY).

• EBIT rose 41.5% YoY, despite margin contraction (-129bps to 10.4%). Margin contraction was primarily attributable to inferior business mix.

• As on 28th April 2021, the company had about 50% of its stores shut due to the ongoing regional lockdowns.

• Company’s ongoing initiatives to contain cost, manage cash and improve market share should support healthy performance. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 1,660 based on 58x FY23E EPS.

Jewellery segment continues to drive the topline

In 4QFY21, the company saw strong growth in the consolidated revenue to Rs. 7,494cr (+59.0% YoY), driven by excellent sales from Jewellery division which grew 71.3% YoY to Rs. 6,678cr. This is also the second consecutive quarter witnessing strong retail growth in the segment which reflects the re-gained market share in this space as the industry witnessed decline in gold prices during the quarter.

Revenue from watches segment almost remained flat on YoY basis to Rs. 559cr, as the recovery rate for Jan and Feb months were at ~90% of the comparable months in 2020 and with better recovery in metros and mall stores compared to last quarter. Eyewear segment saw a growth of 17.9% YoY to Rs. 127cr, while other businesses revenue declined by 22.8% YoY to Rs. 140cr, as the revenue recovery remained 84% compared to Q4FY20.

Business mix weighs on margins

In absolute terms, EBIT grew 41.5% YoY to Rs. 781cr during the quarter, however the EBIT margin shrank 129bps to 10.4%. This can be attributed to business mix where jewellery segment contributed to ~89% of the revenue which registered muted margins on weak margins from B2B sales, loss from custom duty and lower studded mix.

Watches EBIT was down 30% YoY to Rs. 38cr largely due to increased sales of lower margin products, particularly in wearables. However, this was slightly offset by EBIT recorded in the Eye wear segment which ended the quarter with Rs. 23cr as compared to Rs. 2cr in Q4FY20 on the back of better product mix, lower discounts and better cost control. Overall PAT rose 65.7% YoY to Rs. 564cr in Q4FY21.

Key concall highlights

* Customized campaigns with local brand ambassadors along with increased stores count in Tamil Nadu (TN) over the past few years led to a healthy customer growth in this market. The company also received a large order from the TN government for gold coins in Q4FY21.

* Contribution from Golden Harvest is at 21% in-line with last year. However, from Feb month onwards, the contribution came down to 15%.

Valuation

We believe that the company’s ongoing initiatives to contain cost, manage cash and improve market share (policies rolled out in a more systematic manner this time as compared to last year) should lead to better margins and support healthy performance. Hence, we reiterate our BUY rating on the stock with a revised price target of Rs. 1,660 based on 58x FY23E EPS.

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