We attended the Titan analyst day. Management highlighted the weak near-term demand prospects in its core categories — jewellery and watches. Consumer sentiment is mixed but not translating into demand. Implementation of PAN card rule and industry strike due to imposition of excise duty on jewelry in the Budget has hurt 4Q jewellery demand.
As per management, new jewellery collections are doing well and Tanishq brand metrics are strong. It has opened 20 stores in FY16, highest ever and network expansion visibility remains high. Golden Harvest Scheme (GHS) has come back in full flow and is expected to contribute `14 billion to FY17 Jewellery revenues. Imposition of PAN card rule for purchase above `2 lakh has impacted 4Q division sales. Additionally, industry strike has also hit footfalls as Tanishq stores remained closed in some localities despite Tanishq not participating in the protest.
From a longer term perspective, Titan will focus on diamond (`300 billion market) and wedding jewellery (Rs 1,500-bn market) both offer good growth opportunity and are a low hanging fruits, per management (wedding jewellery constitute just 20% of Titan’s jewellery revenues). For FY17, company is targeting 15-20% revenue growth for Jewelry division with intent to at-least maintains FY16 EBIT margins and ROCE. It does not expect sales/sqft to come to FY11 levels in the near term but it aims to maintain Gross margin/sqft at similar levels like FY11. Significant network expansion opportunity exists as per management (400 middle India towns, 500+ Lok Sabha constituencies). We note that the jewellery division has a favourable base in 1HFY17.