Titan ended FY21 with a stellar performance, meeting its June FY21 guidance of full recovery by the end of the March 2021 quarter. The recovery in Q4 was driven by phenomenal growth in the jewellery business with its revenues rising 70% YoY. Growth was further aided by pent-up demand, a rebound in wedding jewellery buying, and strong contribution by metro cities. 

Titan’s stock price fell 2% in early trading hours post its Q4 results announcement.. Regional lockdowns, store closures and lower footfalls have brought Titan back to a place familiar from last year - facing the  challenge of the Covid-19 pandemic.  

Quick Takes:

• Growth was driven by a rise in jewellery sales by 70% YoY, while eyewear revenues rose 18% YoY, and the watch division reported flat revenue growth

• Online customer recruitment reported 4x growth YoY in FY21 and the company intends to further double it in the near future

• Jewellery division growth was driven by pent-up demand, resurgence of wedding jewellery purchases and contribution by both metros and non-metros

• Eyewear business will face Covid headwinds as it involves close proximity of customers in terms of product selection

Revenues recover in March quarter FY21

Operating revenues increased to Rs 7,135 crore in the quarter ended March 2021, compared to Rs 4,428 crore, a year ago, rising 61% YoY. Growth was driven by an upsurge in jewellery sales rising 70% YoY. Eyewear revenues increased 18% YoY while watches reported flat growth. 

Operating profit was Rs 795 crore in Q4 FY21 vs Rs 604 crore, a year ago, rising 32% YoY. Margins came in lower at 11.14%, contracting 250 basis points YoY. Margin fall was due to lower ratio of studded jewellery, higher share of coins and Q4 absorbing the loss of import duty (as duty was already paid upfront before custom duty cut was announced in February). 

On an overall basis, as jewellery is a low margin business compared to watches and eyewear, the skewed product mix led to lower margin levels. Net profit came in at Rs 529 crore compared to Rs 356 crore, a year ago, rising 48% YoY. Commenting on Q4 performance, C K Venkataraman, MD at Titan said that recovery was aided by robust digital initiatives undertaken in FY21 along with physical connect with customers.

Watch sales stay volatile

Titan started off as a  watch company originally, quickly overtaking Allwyn and HMT. Titan introduced ideas of fashion and style into watch purchases, permanently, transforming the Indian watch industry. The company still enjoys a 45-50% market share in the domestic watch  market. But  it’s overall performance has been overshadowed by the jewellery division--Tanishq. Over the past 15 years, Titan’s revenues have grown at a CAGR of 20%, while the jewellery and watch divisions’ rose 24% and 7%, respectively. 

Revenues from sale of watches have been volatile over the past many quarters. The management had guided for a full recovery by Q4 FY21, which has been achieved, but with flat growth YoY. Watch division accounted for 8% of total sales in March quarter 2021. Watches being highly discretionary products, will face an uncertain growth trajectory due to lockdowns, closures of shopping malls and work from home still going strong. 

The eyewear business has been around for the past 15 years and investors are still waiting for it to make a meaningful contribution to overall revenues. After revenue growth being in the negative zone throughout FY21, eyewear business (1.8% of revenues) rebounded with 18% revenue growth in March quarter 2021. Though ending FY21 at a strong note, the eyewear business will face Covid headwinds as it involves close proximity in terms of product selection and the impending fear of infection.

And now coming to Titan’s growth engine - jewellery. Jewellery revenues grew 70% YoY, accounting for 89% of total revenues in Q4 FY21. The jewellery business recovered in the December 2020 quarter and has maintained its growth pace, driven by pent-up demand, resurgence of wedding jewellery purchases, gold purchases being advanced preponement as gold prices softened in March quarter 2021. Sales from both metros and non-metros contributed to the growth revival in Q4.

Ajoy Chawla, CEO at Titan’s jewellery division said that after many quarters, the company witnessed growth apart from buyer growth across all price segments., including the sub-Rs 50,000 segment which was sluggish till Q3 FY21. He added that the company was able to make strong market share gains as customers moved away from small, unorganized local jewellers, even though it is a highly competitive market among strong national players. The company has also been working on gaining market share by focussing on localized and regional connects with customers. 

For instance, Titan has gained considerable market share in Tamil Nadu, a traditional price sensitive market with strong regional players. Titan made a connection with the local population, focusing on cultural nuances, network expansion by adding new stores, leading a localized advertising campaign with a strong local ambassador (Nayantara) and designing jewellery according to local traditions. Apart from strong growth in Tamil Nadu, strong momentum was seen in Bihar, Jharkhand, West Bengal and Orissa. Punjab, Chandigarh, Uttar Pradesh and Madhya Pradesh markets were also strong, Gujarat gave fluctuating performance while Delhi and Mumbai were highly disrupted by Covid headwinds.  

Growth was strong till April 2020, which took a hit as strict lockdowns were imposed and Covid cases surged. In fact, by the end of April, sales were marginally higher than April 2019 levels. Investors are concerned as the management noted that 50% of stores are closed and production, though not halted, has slowed due to Covid safety protocols. 

But the company may now be better placed with its digital learnings of 2020. It has fast-forwarded its digital journey by 2-3 years due to Covid headwinds. Moving forward, management expects sales to be propelled via video selling, augmented and virtual reality, and the Try@Home service offered to customers and endless aisles rolled out for Tanishq customers with access to large touchscreens to browse the product collection. Speaking on online sales growth, Chawla said that online customer recruitment reported 4x growth YoY in FY21 and the company intends to double it in near future.

As vaccination speeds up from May 1, 2021, the next few months will give a better picture on the future prospects of Titan’s business. The management on its part has declined to give any future guidance and has reserved it for its analyst day to be held in June later this year.