Titan’s jewellery biz glitters in Q2 setting the stage for a strong FY23

Titan’s mainstay jewellery business has emerged as a shining star during the quarter. Excluding sale of bullion, jewellery revenues grew by 18% year-on-year, surpassing expectations. As analysts from Kotak Institutional Equities point out, “Acceleration of three-year CAGR to 27% (Kotak’s estimates: 22%) from 23%/15% in Q1FY23/Q4FY22 is incredible.” CAGR is compound annual growth rate.

Titan’s Q2 performance comes on a high base as last year’s September quarter (Q2FY22) had seen some pent-up demand and spillover purchases of a covid disrupted Q1FY22. Recall that jewellery revenues had grown by 77% year-on-year in Q2FY22.

In its Q2FY23 update, Titan said, plain gold jewellery sales clocked double-digit growth. According to Kotak, this implies 32-25% growth in studded sales with its share at about 34%. Studded sales were driven by good activations and better contribution from high value purchases. Titan maintains that the product-mix improved compared to last year but continued to be below pre-pandemic levels. Note that share of studded jewellery stood at 38% in Q2FY20 (pre-pandemic quarter).

Meanwhile, the watch business grew by 20% year-on-year, clocking its highest quarterly revenue. The eyecare business saw 7% growth. These businesses contribute a relatively smaller portion of Titan’s revenues and do not move the needle significantly.

Even so, the stellar show put up by the jewellery business in Q2 may well mean that the company would beat Street’s FY23 expectations. “Hurdle rate for H2FY23 to meet our FY2023E jewelry sales growth is just 8%; we see upside risk to our growth forecast of 32%,” said Kotak’s analysts. “The outlook for festive season (from Navratri in end Sep’22) continues to be optimistic and is visible in positive consumer sentiment across categories,” said Titan in its update.

To be sure, investors seem to be capturing a good portion of the optimism in the share price, which has appreciated by 15% in the past one year. Titan’s shares are now flirting with 52-week highs seen in March. They trade at nearly 63 times estimated earnings for FY24, Bloomberg data shows. “Valuations are pricey, but so is the case for some other quality consumer discretionary companies,” says an analyst requesting anonymity. Even so, pricey valuations may keep meaningful upsides at bay.