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TTAN’s Q4 PAT missed estimates by 10-12%, due to 70-100bps jewelry margin miss and higher subsidiary loss. Whereas jewelry topline growth is healthy at ~20%, the margin miss is a factor of high competition and higher gold mix in studded sales. In our view, near-term EPS growth will be hit by elevated gold prices and added promotions. But we like TTAN’s focus on share gains (vs. nearterm margin), as growth outlook remains robust, at ~20% CAGR. TTAN upheld its guidance of jewelry EBIT margin band of 12-13%, which though would probably stay at the lower-end, as Q1 is likely to miss the band by a margin. Growth opportunity stays healthy, with entry into new cities/catchments and expansion of existing stores. TTAN worked on ~100 Tanishq properties in FY24, with 56 new additions and ~50 renovations, as well as ~50-70 Caratlane/Mia store adds in FY24 (Jewelry square-footage up 24%). We cut estimates by 5- 6% on near-term margin pain but recommend buying into any significant corrections; maintain BUY, with tweaked down TP of Rs4,150 (65x FY26E EPS).

Q4 print a mixed bag; in-line topline; margin miss amid increasing competition

Ex-bullion sales, standalone revenue grew 17%, led by 19%/26% growth in Jewelry/ Other segment, with Eyewear/Watches seeing relatively lower growth at 1%/8%. Among subsidiaries, strong trends continued in CaratLane with ~30% growth. TEAL saw sharp revival, with more than doubling of revenue in Q4, and strong trends expected to uphold in FY25 as well. Jewelry growth was led by double-digit growth in bill-cuts and a healthy 54% contribution from new buyers. Watches growth was muted at 8%, pressed by 3% uptick in Wearables and 9% growth in Analog. Growth was impacted by inventory overload for peers in the masstige segment for wearables. Eyewear disappointed, with flat revenue owing to slower traction for house brands and 2%/12% decline in frames/sunglasses. Emerging segments grew 26%, led by 36% growth in Taneira. Strong network expansion continued for Tanishq, with 13/56 store-adds in Q4/FY24. With ~50 renovations and 50/67 store additions for Caratlane/Mia, the jewelry retail space was up 24% in FY24.

Earnings call KTAs:

1) TTAN’s inventory per store is likely to increase amid sudden spurt in gold price, but company is focusing on light-weighting/merchandising at stores and increasing sourcing through Gold Metal Loan to partially offset this increase. 2) Q4 margins were low due to absence of diamond-led inventory/custom-duty gain, coupled with higher promotional offers and higher gold mix in studded sales. TTAN is working on re-engineering margin upward, which though is likely to take a few months. 3) TTAN has been watchful of the LGD space, as global players /competitors foray in this domain; but for now, it does not see any traction here. 4) Watches/Wearables category is seeing pricing pressure due to excess inventory with competitors; however, TTAN expects the froth to settle in 3-4 months. It continues to focus on top-line growth, and margins are expected to follow, with increase in scale. 5) Q1 demand is expected to be hit by the sudden splurge in gold price (lower consumer sentiment), the elections, and lesser wedding dates. 6) TTAN continues to see an opportunity in foraying into >300 new towns, along with entering new catchments and space expansion in existing stores. 7) Caratlane expansion opportunity is more in Metro/Tier-1 cities for now, and TTAN will focus on healthy SSG with calibrated expansion in existing locations for this format. 8) TTAN aims to double its international store-count (mainly US/GCC/Singapore), as traction remains strong and stores are clocking higher gross margins. 9) Sales from gold exchange were down from last year in Q4; for full-FY24, gold exchange contributed to ~40% of sales. 10) TTAN remains comfortable at current debt levels.

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