Titan Falls On Jewellery Revenue Drop, But Analysts See 'Structural Growth' Ahead

Shares of Titan Co. dropped to a four-week low after the Tata group company's revenue from its mainstay jewellery business dropped in the fourth quarter, hurt by partial lockdowns, volatility in gold prices and uncertainties due to the geopolitical crisis.

Revenue from the jewellery division, that contributes nearly 80% to total revenue, fell 4% year-on-year in the January-March period, the owner of Tanishq brand said in a quarterly business update released on the bourses on Wednesday.

The jewellery division, it said, faced a "volatile" quarter due to the Omicron wave in January, a "very strong" resurgence in February and again a drop in customer purchases in March on the back of a sharp rise in gold prices and "sentiment impact" due to the external geopolitical conflict.

During the quarter, the company also acquired a minority stake in Great Heights Inc., a maker of the lab-grown diamonds.

Titan's watches and wearables business saw revenue growth of 12%, with sales increasing across all offline channels.

Eyecare, a relatively small business for the company, recorded 5% growth over the year earlier, with frames and sunglasses leading.

According to the company, an increase in sales from departmental stores and e-commerce led to 21% year-on-year growth in fragrances and 67% growth in fashion accessories business. It added 105 stores in the quarter across divisions.

Titan Engineering and Automation Ltd., a key subsidiary of the company, saw large dispatches in the quarter triggered due to postponement of deliveries on the back of supply-chain disruptions earlier. "The enquiries have shown gradual improvement but are still below normalised levels."

Another unit, CaratLane—72.3% owned by Titan—posted 51% year-on-year growth, led by a "digital-first strategy".

Shares of Titan fell as much as 3.4%—the most since March 25—to Rs 2,452 apiece. That compares with a 0.9% decline in NSE Nifty 50 at closing.

Of the 32 analysts tracking the company, 21 recommend a ‘buy’, six suggest a ‘hold’ and five have a ‘sell’ call, according to Bloomberg data. The average of the 12-month price targets implies a 9.7% upside.

Here's what brokerages made of Titan's Q4 business update:

• Stays 'overweight' with a target price of Rs 2,720, implying a potential upside of 7%.

• Initial Q4 trends were mixed, with a decline in the jewellery segment, double-digit growth in the watches segment, and mid-single-digit growth in the eyecare segment.

• Management sounded optimistic with network expansion and campaigns continuing to progress well in anticipation of an upbeat Q1 FY23, which the company expects to be normal after a gap of two years.

• Has a bullish view on the near- and medium-term growth outlook, though Covid and gold price volatility remain as risks.

• Risks to upside: Faster-than-expected recovery in consumption; easing competitive pressures; faster market share gains; favourable product mix and lower discounts.

• Risks to downside: Increase in Covid-19 cases and a delay in urban consumption recovery; increased price competition in jewellery; increase in consumer promotions and discounts; increased investment and weak performance in new businesses.

• Maintains 'hold' with a price target of Rs 2,600, implying a potential upside of 2%.

• Titan is a structural growth story, but given the lofty valuations, we rate the stock 'hold'.

• Positives include buoyant gold prices, share gains, higher wedding budgets for jewellery, and cost focus.

• CaratLane business has low capital intensity and is already Ebitda-positive. Growth plans remain strong, with new initiatives like silver offerings, rentals, international and even NFTs underway.

• Maintains 'buy' with a target price of Rs 2,910, implying a potential upside of 15%.

• Omicron and volatile commodity costs weaken consumer sentiments.

• While gold prices have stabilised at lower levels by the end of the quarter, wedding demand remains very healthy and there is less likelihood of a disruption by any further Covid wave, there could be some residual impact in Q1 FY23 as well.

• The structural investment case for Titan remains intact.

• Maintains ‘add’ at a fair value of Rs 2,540, implying a flat yet positive upside.

• We view Q4 as a blip in a promising story.

• Impact of this gold price rally is likely to be short-lived; we see modest cuts to our estimates.

• Titan is making determined inroads into regional markets (including the tough-to-crack Tamil Nadu market) and strong progress in the wedding segment, while expanding its customer base.

• Titan's attractiveness comes from low market share in a large addressable market and wide gap versus competition and focus on keeping its lead.

• Maintains ‘buy’ at a target price of Rs 2,754, implying a potential upside of 8.8%.

• Titan’s growth levers intact, expect back ended returns.

• Our channel check suggests that industry sales were down by 50-60% QoQ and Tanishq has gained share given structural tailwinds. Diamond prices are firm and jumped 40% in the past few months, we expect diamond prices to remain firm given that Russian supply will not be available. We expect the jewellery business to sustain strong margins due to inventory gains in diamonds in Q4 and Q1 FY23 as well.

• Titan is well placed to capitalise on growth led by the benefit of hallmarking, omni-channel strategy across jewellery, watches and eyewear and new growth drivers like Caratlane, Titan Eye+, Taneira, and entry into high growth segments like headphones and truly wireless earphones.

• Maintains ‘buy’ with a target price of Rs 2,700.

• Expects strong momentum in the jewellery business in Q1 FY23 given the favourable base and stability in gold prices as geopolitical issues subside. However, the threat of fresh lockdowns due to a new Omicron variant and continued geo-political tensions are key risks. Management commentary on jewellery demand in April-May is a key monitorable.

• The company’s strategy to invest in growth of this division has helped it to gain market share. We expect premiumisation and new launches to continue to drive Watches revenue over the long term.

• Network expansion and new innovative launches are likely to drive growth going ahead. Cost control measures will drive profitability.

• Given the volatility in gold prices witnessed in the latter part of Q4 FY22, we model a 2% revenue decline in Q4 FY22.

• The long term fundamentals are intact and in the absence of higher investment opportunities in the sector, Titan would continue to command high valuations.