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Titan’s businesses again displayed some remarkable resilience and strength during Sep-Q. Jewellery (ex-bullion) performance was strong at 19%, with a good uplift in margin (back to 14.1%), notwithstanding all the noise around the need to hike promotions to drive sales. Management re-iterated its margin guidance of 12-13%. There are some bits of unevenness in terms of festival calendar so some sales could have been phased between 2Q and 3Q but underlying momentum for the category still seems to be reasonably buoyant. Watches grew very well but margin did not adequately reflect leverage from the scale achieved (crossed INR10bn per quarter for the first time) – likely due to margin-drag from the growing share of Wearables – now at c.16%. We expect Titan to continue commanding a premium valuation, more so given scarcity of ‘growth-businesses' in the space at this point. Maintain BUY.

* Strong all-round show in Jewellery, but relatively lower margin in Watches drove a miss in earnings: Titan’s Sep-Q sales grew 21.7% to INR99bn (standalone) led by strong growth of 19% in Jewellery and even stronger 31.7% growth in Watches while Eyewear grew relatively slower at 12.6%. EBITDA and net profit grew 9.8% and 9.7% to INR13.6bn and INR9.4bn - these were c.3% below our forecasts with the miss attributable to lowerthan-expected Watches margin which was tad down yoy despite a very strong growth.

* Impressive momentum continued in Jewellery; margin back at higher levels now: Ex of bullion, Jewellery sales grew 19%. India business grew better at 21% with both Buyers and Average Bill Value growing in double-digit; exports decline of 33% (lower inventory transfers to overseas subs) dragged overall growth lower by c.200bps. Studded (100bps improvement in share to 33%), high-value and wedding segments all grew strongly during 2Q. There was some benefit of calendar-shift this year that led to the inauspicious days being moved to Oct vs Sep earlier – this helped 2Q growth but we reckon there could have been some offset as well given that festive-dates are occurring much later this year. Interestingly, store-level growth was even higher at 27% - reported growth was impacted by discounting (-1%), some accounting adjustments (-2-3%) and lower primary sales to franchisees (-3%) given that festive dates fall much later (mid-Nov) this year. On margin front, the Street was expecting the hits seen in recent periods to continue with the assumption that there is a need nowadays to spend more aggressively on promotions to drive growth. Titan, however, managed to lift its margin back to the earlier higher trajectory – at 14.1% in 2Q. In terms of QoQ movement, the 3ppt better margin between 2Q’s 14.1% and 1Q’s 11% can be explained to the 7ppt better studded mix (c.200bps margin benefit) and the balance being the hit taken in 1Q from the higher caratage offered against old gold being exchanged. On YoY basis, the compression in Jewellery margin is due to c.200bps one-off inventory-related gains in base quarter.

* Watches margin was below expectation; Eyewear inline but relatively weaker: 1) Watches segment grew 31.7% - Wearables more than doubled (+131%) but Analog growth was strong as well at 22%. Watches EBIT margin of 14.7%, though, was still marginally lower yoy despite the strong topline – likely due to gross margin dilution from Wearables and higher promotions-related costs given the nature of that segment at present. 2) Eyewear grew 12.6% - mostly volume-led while pricing was flattish. Margin was weak – down 187bps yoy to 14.9%

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