Q1 jewellery growth impacted by COVID-19: 1) Jewellery growth (excluding bullion sales) at 107% yoy (on last year’s benign base) is still quite impressive in a quarter disrupted by the second COVID-19 wave with only 47% total store operational days. Around 90% of stores are now open, but one-third of these still face weekend lockdowns. 2) On a positive note, despite lower operational days, June sales were better than last year. In addition, the division gained traction with new customers, and fresh enrolment in the Golden Harvest Scheme improved in yoy terms, indicating a positive demand outlook ahead. 3) Despite lockdown, Titan still added 5 Tanishq stores on a net basis in Q1. 4) Both Watches (sales up 280% yoy) and Eyewear (sales up 117% yoy) witnessed faster recovery than last year, aided by omni-channel presence and recovery in walk-ins. 5) Taneira stores were operational for just 30% of the total store days in Q1. 11 of its 14 stores are now open. 6) Overall, Titan’s Q1 sales were up 117% yoy (ex bullion sales), which is impressive, in our view, given the challenging backdrop of the quarter.
We expect a strong rebound in demand: 1) Titan has managed the disruption relatively well, and as the second COVID-19 wave subsides, and vaccination gains pace, a strong revenue rebound is imminent, in our view, given the journey of recovery seen last year, when jewellery sales consistently exceeded expectations. 2) The benign base for FY22, gradual demand recovery and continued network rollout (Titan added 26 stores in a disrupted FY21) still portend strong growth in FY22e, which will continue be a key catalyst for stock performance, in our view.
Market share gain journey for Titan will accelerate: 1) Titan is well placed to capture value from the long-term growth potential in the jewellery sector (driven by its consumer trust, brand, compelling value proposition of pricing, exchange offers, design, wedding focus) by gaining market share consistently. 2) Mandatory hallmarking (government has started phased implementation from 16 June 2021) now makes another structural push to industry transitioning towards organised trade, where Titan has a logical right to win, with 100% of its jewellery hallmarked. Refer: Mandatory hallmarking another positive catalyst, 25 May 2021. 3) Titan is also building long-term growth options, such as Taneira (ethnic wear), which has begun well and has the potential to be a large value driver.
Retain Buy, new TP Rs1,900: The current share price builds in long-term earnings growth expectations of c.15%, which we think is an easily surmountable hurdle given Titan’s formidable position to capture the value of the prospective growth in the segment. We adjust our estimates, increase our TP to INR1,900 (from INR1,830), and retain a ‘Buy’.