However, gold prices increased toward the second half, which, in our view, led to demand postponement, impacting segmental growth for the quarter.
TITAN delivered lower-than-targeted jewellery sales growth of 13% y-o-y in Q1FY20 on account of tough macroeconomic environment and high gold prices (particularly in June).
However, the company continued capturing market share in the segment. Akshay Tritiya sales were robust. This festival was celebrated in the initial part of the quarter. In fact, the first half of the quarter was good in terms of sales, with 19% y-o-y growth till 7th May’19 (as mentioned in Q4FY19 earnings call).
However, gold prices increased toward the second half, which, in our view, led to demand postponement, impacting segmental growth for the quarter. 12 Tanishq stores were opened during the quarter, with net retail space addition of 34k sq. ft. The division saw its semi-annual activation in both ‘Titan’ and ‘Fastrack’ brands during the quarter.
Eyewear division also saw activation during the quarter, which helped achieve revenue growth of 13% y-o-y. Growth in trade channel exceeded that in overall division in Q1FY20. It launched 27 new stores (and closed 9), adding 12k sq. ft. of retail space in Q1FY20 at the net level. Skinn – delivered good growth in Q1FY20. To target new consumers, the company is now focusing on small packs.
E-commerce channel is witnessing strong growth rates for Skinn. Taneira – opened its flagship store in Hyderabad in the villa format, taking the total store count for the division to five.
Consequently, we lower our EPS estimates by 2.7%/1.8% for FY20/21. We note that high gold price at the latter part of Q1FY20 led to postponement of demand, but the division should make a strong comeback in the rest of the year. We believe that Titan’s high valuations are fully justified, given its (a) best top-line growth visibility in the large-cap FMCG/retail space (20% CAGR in jewellery, the largest segment, over the next four years), (b) prospects of continued Ebitda margin improvement because of high SSSG contribution and (c) sustained RoCE improvement from ~26% in FY19 to 34% in FY21.
We maintain ‘Buy’ with a revised target price of Rs 1,500.