Titan released a stronger-than-expected business update for the third quarter of FY24. Although household consumption was not very strong during the festive season, jewellery demand remained high and Titan (and other jewellery businesses) saw strong growth. This was despite volatile gold prices, a large number of Shradh days, and flash floods in Tamil Nadu that forced shops there to shut for a week. Shradh is a Hindu ceremony performed to honour one’s deceased parents and ancestors.
In Q3, the price of gold rose 3% from the previous quarter and 16% year-on-year. But gold demand remained stable owing to wedding purchases and perhaps the perception that it serves as a hedge during periods of high inflation.
Titan saw 23% year-on-year growth in standalone jewellery sales (excluding bullion) and an overall revenue compound annual growth rate (CAGR) of 32% during the quarter. The company also opened 21 net new Tanishq stores in Q3, taking the total count to 466 (+43 in FY24 so far).
Titan added a total of 90 stores during Q3, taking its total retail presence, including CaratLane, to 2,949 stores. New stores were opened in the US and Singapore, and The Mia by Tanishq line of exclusive branded jewellery opened its first store in Dubai, taking its international footprint to 14 stores. The watches and wearables division did well, but eyewear saw a small drop in sales.
The management said margins were flat, but customer growth and volume growth were driving the business. Improvement in the average selling price was moderate but buyer growth has been in the double digits.
The 22-23% revenue growth in jewellery sales implies the company has maintained a four-year CAGR of 21 % in jewellery revenues. Jewellery revenue was around ₹11,700 crore, led by 21% domestic growth. This is the third consecutive quarter of more than 20% growth. Plain gold jewellery and coins grew faster than studded pieces. Standalone jewellery EBIT (earnings before interest and tax) margin will be flat year-on-year at 13% thanks to the impact of lower studded sales and higher consumer offers. Consolidated net sales should grow by 25% year-on-year in Q3.
The management said this was down to exchange programmes and other offers to lure consumers. Along with the rationalisation of gold rate mark-ups, this will squeeze margins. But better operating leverage and lower franchisee commissions have helped maintain them.
The watches and wearables business grew by around 23% year-on-year, but eyewear clocked a 3% decline. The fragrances and fashion accessories segment also declined by 9% year-on-year. But Taneira’s sales (women’s ethnic wear) grew 61% year-on-year in the wedding season and the brand opened 11 new exclusive stores. There was also 31% growth in CaratLane (everyday jewellery), driven by new collections, wedding gifting, and a mangalsutra campaign. CaratLane also added 16 new domestic stores.
Titan first established its reputation as a jeweller with its guarantee of testable purity for Tanishq jewellery. It has steadily moved to occupy different price points through brand extensions. The company also has excellent bullion sourcing and inventory management, apart from cutting-edge designs.
Its long-term prospects remain excellent. While it is the largest organised player in jewellery, it holds only an estimated 7% of the market, which is still dominated by unorganised jewellers. It has grown its customer base, entered regional markets, exploited the wedding segment, and established a global toehold. It has also persuaded customers to wear watches as a fashion statement in an era where many people use their phones to tell the time. In addition to steadily expanding its physical retail network, it is also creating a strong presence online.
There are potential risks, of course. Apart from the volatility of precious metal prices, greater penetration of lab-grown diamonds could be a threat.
Analysts raised their consensus target prices and valuations after the Q3 update. Given the high base, maintaining 20% CAGR is very impressive. The late Rakesh Jhunjhunwala had a stake in Titan worth well over ₹7,200 crore at the time of his death. The stock remains a darling of investors, with positive perceptions of its business model boosted by the “Jhunjhunwala effect”.
