By Suhani Adilabadkar

It's festival season again, when the jewellery comes out of the cupboards, and Titan is optimistic. The company reported stable June 2021 quarter results amid the Covid-19 second wave. Investors and analysts alike are expecting softening of gold prices from June highs and lower Covid-19 spread to assist Titan’s revenue growth in the coming quarters. Preponement of wedding jewellery demand due to Covid-19 third wave uncertainty is another tailwind. Wedding jewellery growth for Titan picked up from Q2FY21 and its revenue contribution stood at 23% by the end of FY21, unchanged from pre-pandemic levels. Titan is mainly into the everyday adornment jewellery segment and has lower wedding jewellery exposure compared to its peers. The management sees strong headroom for wedding jewellery growth and robust contribution to the overall revenue mix in H2FY22.

Titan gained nearly 50% since early May 2021, the highest among the Tata group of companies. While the street expects a festive splurge to augment discretionary spending in the coming quarters, a lot will depend on positive consumer sentiment and its persistence after the drawn-out pandemic. 

Quick Takes

• Titan plans to add 35 new stores in FY22, 11 new stores already opened till July 2021

• Titan established 100% subsidiary in USA in Q1FY22 to expand its Tanishq jewellery business 

• The company aims to increase its Tata Eye Plus network from the current 602 to 1,000 stores in the next few years

• Consumer confidence index as per Reserve Bank of India’s bi-monthly consumer confidence survey in July 2021 was low at 48.6

Resilient jewellery business aids Titan’s recovery

The second pandemic wave hit Titan’s operations from the third week of April 2021. The month of May was largely muted as a result with gradual store reopenings from June 2021. Consequently, Q1FY22 had net profit coming in at a low of Rs 61 crore, though with a 123% YoY rise mainly due to a lower base of Q1FY21 (complete loss of sales in April 2020 due to the national lockdown). The company had reported a net loss of Rs 270 crore in the June 2020 quarter. The discretionary nature of its products, which belong to the ‘touch and feel category’, high ticket size, high gold prices, and poor consumer sentiment was expected to hurt Titan’s recovery from the lows of the June 2020 quarter. But the lifestyle behemoth charted a different story. 

Titan’s loyal clientele and robust jewellery business aided this recovery.  Upper-middle-class and affluent salaried segments make up the bulk of Titan’s client mix. This segment has largely been spared the ravages of the pandemic and while there were pay cuts, job security was well maintained. Titan’s resilience mainly vests in its jewellery business (Tanishq, Mia, Zoya, and Caratlane). Titan’s jewellery business constituted 85% of total revenues followed by watches and wearables and eyewear at 10% and 2% respectively in Q1FY22.  Jewellery business reported revenues of Rs 2,467 crore, a rise of 109% YoY in the June 2021 quarter.  

Lower gold prices support jewellery business growth

Titan’s jewellery business reported a 71% YoY revenue decline in Q1FY21 but bounced back sharply in the September 2020 quarter. As gold prices touched a peak of Rs 56,000 per 10 grams in August 2020, customers bought gold coins and plain gold jewellery fearing further escalation. Gold investment was preferred as stock markets slumped and economic uncertainty deepened. 

But gold prices are on a different trajectory since the beginning of 2021. Gold prices in India declined roughly 10% since January 2021 and are mainly dependent on international gold prices. As the global economy improved and the world's economic powerhouse, the US, recovered, gold as a safe haven lost some of its sheen over the past 6-8 months. On the back of strong vaccination drives across the world, governments are hopeful of controlling the Covid-19 Delta variant. And as growth rebounds and inflation rates cross analysts' expectations in major economies such as the US, UK and Europe, gold prices are not going back to 2020 levels. 

Supported by lower gold prices, Titan is expecting strong growth for the jewellery business in the upcoming September 2021 quarter and H2FY22. According to the management, apart from repeat customers, the company is seeing high growth in new customers and strong wedding jewellery demand as customers wary of Covid-19 third wave are advancing their purchases. Speaking on recovery trends visible in the jewellery business, Ajoy Chawala, CEO, Jewellery Division at Titan said that in addition to tier-2 and tier-3 cities, metros such as Delhi, Mumbai, and mini-metros like Ahmedabad are recovering at a faster pace compared to the recovery post first wave. Q2FY22 is expected to report strong sequential and YoY growth for the jewellery business with the complete opening of the economy and as lower gold prices cajole customers towards both wedding jewellery and bullion purchases.

And this momentum is expected to continue in the next few quarters, as the US Fed is expected to dial back its bond purchases leading to lower liquidity in global markets. The US Fed meet which concluded on September 22, 2021, indicated tapering of the bond-buying program by the end of 2021 and rate hikes in 2022. This will strengthen the US dollar further curbing any significant upside in gold prices. US dollar and gold prices have an inverse relationship. As the US dollar strengthens and the world economy recovers, investors move towards equities rather than gold as an investment. 

Titan ready with future growth drivers, watches, and eyewear recover

Apart from jewellery revenues doubling YoY, watches and eyewear divisions reported revenues of Rs 292 crore and Rs 67 crore, a robust growth of 291% and 120% YoY respectively in Q1FY22. Speaking on the strong recovery, Suparna Mitra, CEO, Watches, and Wearables Division at Titan said, “I think consumer sentiment has been faster to recover and we see that across all channels in the watches division, whether it is multi-brand outlets or large format stores and certainly in our retail stores”. 

According to the management, a strong vaccination drive helped improve consumer sentiment and customers returned to buying at a faster pace compared to the first wave. Omni-channel sales are gaining traction and the company is seeing better recovery in higher ticket products compared to lower-priced products. The watch and wearables division is witnessing a stronger recovery in smaller towns, compared to the top 8 metros. In the eyewear business, the company is rapidly expanding, both in the top 8 cities as well as the rest of India by increasing its network of Tata Eye Plus stores from the current 602 to 1,000 in the next few years.

“We want to make Taneira in the ethnic wear industry (sarees and kurtis) what we made Tanishq in the jewellery industry,” said C. K. Venkataraman, Managing Director at Titan.  Though Taneria store expansion was held back because of COVID-19 pandemic, the company came up with a unique concept known as “Trunk”. Trunk is a pop-up store, a three-day event across its sister brands, in mainly Tanishq stores. The company is seeing strong growth from tier-1-2-3 cities and plans to ramp up growth. Taneira plans to have over 75 trunks in FY22. Through Taneira, its youngest business, Titan aims to capture a large section of the underserved and unorganized saree segment, widening its revenue basket in the long run. Titan plans to leverage Titan's unique brand equity to penetrate the Rs 500 billion Indian saree segment. Though this seems a gamble to many, Titan might prove its sceptics wrong in its goal to make Taneira a household brand in the next few years.  

After successfully launching Tanishq in Dubai, Titan is now focusing on the US markets. The company re-entered North America after 11 years and established a 100% subsidiary in Q1FY22 to expand its Tanishq jewellery business. In 2006-2007, Titan targeted mainstream American consumers through the Tanishq brand offering a product line as per American tastes and preferences. 

High investments in brand building and the 2008 global financial crisis impacted the Tanishq jewellery business in North America leading to its closure. Fast-forward to 2021, Titan is now targeting Non-Resident Indians (NRI) and Persons of Indian Origin (PIO) in the US market. According to the management, the per capita income of these consumers is around $100,000. Titan sees a market opportunity of about $3-4 billion with a decent ticket size and high diamond jewellery share in the North American market.  

Covid-19 impacts consumer sentiment and the road ahead

Though Titan is cautiously optimistic about the next three upcoming quarters, recovery is still below pre-Covid levels. Consumer confidence index as per Reserve Bank of India’s bi-monthly consumer confidence survey in July 2021 came in at a low 48.6. A score of below 100 indicates a pessimistic view in terms of prevailing consumer sentiment.

While accelerated vaccination drives across the country reduced health-related anxiety levels, various surveys conducted by private entities also indicate caution in terms of consumer spending. Consumers are keener on spending on essential and health-related products. Significant monthly performance indicators such as vehicle registrations, home sales, diesel consumption, etc in August 2021 were still below pre-pandemic levels. People are saving more and discretionary spending is on hold as consumers are wary of a Covid-19 third wave. RBI’s consumer confidence survey to be released in the first week of October 2021 will give a better indication of consumer sentiment and enthusiasm for the upcoming festive season among consumers. But, Titan investors are not worried. They are confident that India’s age-old passion, gold jewellery, will come to its rescue.