Titan Company Limited Q1FY22 Result Analysis and Conference call Highlights

Q1FY22 Result Analysis

Q1FY22 Result

• The Revenue from Operation of the company has grown significantly by 119.6% YoY from Rs. 1,368 Cr. in the quarter ended 30^th June 2020 to 3,473 Cr. in the quarter ended 30^th June 2021. Sequentially, the revenue has gone down by 59.1% from Rs. 7,351 Cr. in the quarter ended 31^st March 2021.
• The EBITDA of the company has gone from negative to positive territory on yearly basis from Rs. -253 Cr. in Q1FY21 to Rs. 137 Cr. in Q1FY22. Sequentially, the EBITDA of the company has gone down by 83.2% from Rs. 817 Cr. in Q4FY21.
• The EBITDA margin has also moved from the Negative to Positive region to 4.6% in Q1FY22. Quarter on Quarter, the EBITDA margin has contracted by 650 bps from 11.1% in Q4FY21.
• The Profit Before Tax (PBT) of the company has also gone from Rs. -361 Cr. in Q1FY21 to Rs. 39 Cr. in Q1FY22. Quarter on Quarter, the same has gone down 94.7% from Rs. 730 Cr. in Q4FY21.
• The company reported a Net Profit of Rs. 20 Cr. in Q1FY22 down by 96.5% QoQ and has rebounded from Loss region in Q1FY21.
• The Net Profit Margin of the company in Q1FY22 is 0.6%.

Titan Company- Q1FY22 Result

2) Segment-Wise Revenue:

• The Watches and Wearables Segment of the company has witnessed growth in revenue of 286% YoY from Rs. 76 Cr. in Q1FY21 to Rs. 293 Cr. in Q1FY22. Sequentially, the Watches and Wearables segment revenue has gone down from Rs. 559 Cr. amounting to de-growth of 47.6%.
• The Jewellery Segment reported growth of 67% in revenue on yearly basis from Rs. 1,824 Cr. in Q1FY21 to Rs. 3,050 Cr. in Q1FY22. Sequentially, revenue from this segment has also gone down from 54.3% from Rs. 6,678 Cr. in Q4FY21.
• The eyewear segment also reported healthy growth of 123% YoY from Rs. 30 Cr. in Q1FY21 to Rs. 67 Cr. in Q1FY22.
• As of Q1FY22, around 87% of the revenue of the company comes from the Jewellery Segment while, Watches and Wearables, Eyewear, and Others Segment contribute 9%, 2%, and 2% respectively.
• The EBIT Mix of the segments are also provided below:

Titan Company- Segment-Wise Performance

Earnings Call Highlights:

Jewellery Division:

• As guided by the management in its pre-quarterly update, the jewellery division (excluding gold bullion sale) reported 115% YoY revenue growth (~63% recovery rate based on Q1FY20).
• During the quarter, the company optimised excess inventory by selling excess raw gold worth Rs. 424 crores in Q1FY22 against Rs. 601 crores in Q1FY21. Overall jewellery sales were at Rs. 3050 crores up by 67% YoY.
• Total store operational days were at 73%, 10% and 58% for April, May and June, respectively, and 47% for the quarter.
• With a gradual lifting of restrictions on stores, sales have bounced back sharply towards Q1 end with good momentum till date.
• The management indicated that underlying gross margins (excluding the impact of ineffective hedging and bullion sale) in Q1FY22 were at the best levels in five quarters.
• EBIT margins for the jewellery division were at 6.5% (Q4FY21: 10.7%, Q1FY21: (-)3.0%).
• Robust performance in challenging times reaffirms our thesis of long term market share gains for Titan.
• On-demand trends, the first half of July has been better owing to the higher number of wedding days while the second half of July was comparatively slower. T
• The studded activation in July has seen good traction. The Studded mix at the retail level was 25% in Q1FY22 vs. 21% in Q1FY21 and 28% in Q1FY20.
• The recovery has been better but has not yet reached pre-Covid levels.
• Titan’s wholly-owned subsidiary Titan Commodity Trading started its operations and Titan has started hedging gold through its subsidiary.
• Titan has incorporated the subsidiary to reduce counterparty risk in gold hedging and also save on costs related to gold hedging.
• The company indicated that in the last two to three years Tanishq Jewellery stores have opened in many smaller towns.
• The sales per store are lower in smaller towns but the overall productivity and profitability are in line with the majority of the store network. Titan has guided for 35 new store additions for FY22.
• On the region-specific performance, Tamil Nadu has performed well for the company (gained market share).
• The company is doing a lot of localised activities in Uttar Pradesh, Bihar, Jharkhand and Odisha.
• Also, Titan is exploring a couple of other new markets but waiting for the normalisation of the trade scenario. In all these regions, the company is looking to provide the customer with state-specific jewellery product design & customisations.
• On the competitive intensity front, the competition continues to be high with varied offers and discounting resorted to by competition. However, the company is not looking to participate in higher discounting and is likely to continue its focus on providing better products and customer service.
• Titan considers compulsory hallmarking of gold to be beneficial for larger players as smaller players would need to increase their making charges. The lower difference in making charge between local players and Tanishq would enhance the desirability of Tanishq products. Also, product design capabilities and other customer service attributes would increase the affinity for branded jewellery players.

Other Segments:

• The contribution of wearables to the watches division revenue is less than 5% of watches revenue.
• Wearables have been growing faster than watches while the recovery in wearables is also better than watches.
• On the eyewear business front, the company is planning a rapid expansion of store network in seven to eight major cities along with entering new smaller towns and cities. The branding focus has shifted from eyewear to eye care.
• On Taneira (ethnic wear and saree brand), the management indicated that it has aspirations of scaling the business significantly and is waiting for normalcy in the trade scenario to push growth