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Decent performance amid challenges: Titan reported sales growth of 6.2% YoY and 11.5% QoQ to Rs 13,266cr. During the quarter, the performance was impacted due to steep gold prices, lower number of wedding days and election-led restrictions in its core markets. Amongst segments, Jewellery segment’s (88.2% of the net sales) net sales increased 7.3% YoY while watches and wearable’s segment’s (7.6% of the net sales) net sales increased 7.3% YoY.

Pressure on margins: During the quarter, gold prices remained elevated which led to increase in the cost of the products manufacturing and put downward pressure on margins. Its gross profit grew by 5.2% YoY and 10.9% QoQ to Rs 2,930cr with margin at 22.1% which declined by 21bps YoY/12bps QoQ. Increase in other overheads due to store expansion led to decline in EBITDA margin by 13bps QoQ/6bps YoY to 9.4%. During the quarter, interest costs saw a surge by 111% QoQ/14.4% YoY to Rs 230cr which led to decline in PAT by 7.3% YoY and 5.4% QoQ while margins contracted by 96bps QoQ/78bps YoY.

Steady performance by Jewellery segment: As on Q1FY25, Jewellery segment contributed ~88% in terms of revenue and ~92% in terms of EBIT. The segment saw healthy growth of 7.3% YoY and 10.4% QoQ to Rs 11,808 in revenue. Performance of the Jewellery business was impacted due to a steep rally in gold rates (20% YoY), election led restrictions in many markets, very few wedding dates (5% growth in wedding sales YoY) and an unprecedented heat wave across the country.

Store expansion: The Company continues to expand its footprint by increasing its store count in key strategic areas domestically and internationally. During the quarter, In India, 11 new stores (net) were added in Tanishq, 19 stores in Mia and 3 stores in Zoya respectively. Zoya opened its first store in the cities of Chennai and Pune while CaratLane added 3 new stores (net) in the quarter taking the total store count to 275 stores spread across 112 cities pan-India.

Outlook and valuation: Titan reported mixed set of numbers for the quarter. Titan has a large presence in the Jewellery industry through its brands like Tanishq, Mia, Zoya and Caratlane and has an overall market share of ~7% further, downward revision of custom duty on gold imports is a positive in the long-term with short-term implications on profitability and gold on lease. Company is also an emerging lifestyle player with presence across segments like Watches, Eye-Care and Emerging business. The company is focus on increasing its footprint by store expansion while taking efforts to improve margins. Its new business continues to see consistent growth. On the financial front, we have estimated its revenue/EBITDA/PAT to grow at 21.5%/28.0%/28.9% CAGR over FY24-26E. Thus, maintaining our Buy rating and a target price of Rs 4,270.

Moderate growth in watches, wearables and eyecare segment: Watches and wearable segment saw single digit growth of 8.9% YoY in terms of revenue to Rs 1,023cr while the eyecare segment reported flat growth of 26.5% YoY to Rs 210cr. Volumes in Wearables segment clocked healthy double digit growth, the average selling prices continued to decline leading to ~6% YoY drop in revenue. Titan World clocked a strong retail growth of ~13% YoY (9% L2L growth) despite heatwave disruptions during the quarter. In Eyecare business, Value and 'Affordable Fashion' segments drove revenue growth in Titan Eye+ retail network (~85% of the business) by 10% YoY; Revenue via the Trade channel, comprising ~6% of the business, witnessed a decline of 47% YoY. In terms of expansion, 5 new stores were added to Titan World, 7 to Helios, and 5 to Fastrack during the quarter. Titan Eye+ added 3 new stores. 'Runway', Titan's first exclusive store, offering premium sunglasses for the discerning customers, was launched in Jun-24 at Bengaluru.

Con-call highlights:

*  Competition intensity continuous to be high along with consumer sentiment is soft. As a response to the increasing competition, the company had to offer discounts and offers to the end consumer which led to margin compression.

*  For the full year FY25, management intends to add 40-50 Tanishq stores in India, 70 -80 Mia stores, and 70-80 Caratlane stores. Additionally, 20-30 stores would undergo transformation into larger formats.

*  Custom duty reduction on gold imports is impacting margins in the short term but expected to be beneficial in long term.

*  Finance costs increased due to a Rs 60-65 Cr quarterly interest payment from the Caratlane acquisition borrowing, which will be cleared in 2 years.

*  Management maintains its previous guidance of 12-13% EBIT margin in Jewellery business despite rise in the competitive intensity.

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