Titan- Jewellery behemoth hurt by shutdowns

Last updated: 15 Jul, 2020 | 12:06 pm

Titan- Jewellery behemoth hurt by shutdowns
  • The Jewellery sector is huge in India- contributing over 7% to India’s GDP and constitutes about 30% of global consumption of Jewellery.
  • Titan is one of the only quality listed companies in this sector in the Indian markets and hence commands a strong valuation in the markets.
  • The business of the company is largely dependent on Jewellery sales which contributes to over 80% of revenues although they have been looking to diversify the business.
  • Titan’s business, however, has been slowing down in the recent past even before the onslaught of COVID-19 pandemic, due to a slowdown in discretionary spending across the economy  
  • The outlook had been particularly challenging for its jewellery segment, which has seen a steady drop in growth rates

Titan has given an update on the state of their business in COVID times

  • While a majority of their retail stores were closed in April due to the shutdown, they have seen a pick up in sales in May and June.
  • The company stated that recovery in the Jewellery segment has been better than originally anticipated in Q1FY20. 
  • The bounceback is mainly on the back of higher share of wedding jewellery sales (despite the deferment of many weddings), good sales coming from Tanishq GHS scheme, and investment-led demand leading to higher gold coin sales
  • Non-metros rebounding faster: Store re-opening and sales recovery is better in non-metros, due to lower impact of the pandemic there. Studded Jewellery share has been lower, as key metro markets account for a significant chunk of studded jewellery share. The table below compares the sales in May-20 and June-20 to sales in the same period previous year.

INDmoney Analysis

  • Although recovery in the jewellery division is encouraging, full-fledged demand recovery remains elusive. 
  • The shutdowns across the country will continue to weigh on sales and the escalating number of cases in the country has raised the risk of more shutdowns in metros.
  • The jewellery business is sensitive to high gold prices and hence the segment has been seeing low growth over the last few quarters. This trend is expected to continue.
  • Titan shares have recovered by about 37% from their 52-week lows hit on March-24th. At current market price, the stock is trading at an expensive valuation of about 48 times estimated earnings for FY 2022. 
  • Analysts expect about ~62% - 75% drop in revenue & EBITDA for Q1. With Q1FY21 earnings virtually a washout, these valuations could be stretched further. 
  • The second half of the year may see a demand revival due to festive season sales.

Our VGQM stock analysis model has a SELL rating on the stock.

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