Caratlane’s operations were hit due to lockdown. Many of its stores are in malls and have not reopened yet. However, it has a good proportion of sales from online operations.
Titan’s operations were substantially hit during the lockdown. Sales were also impacted due to ‘Akshay Tritiya’ falling on April 26 (during the lockdown) and weddings getting postponed. The company had marginal sales through its online channel. The share of online business is only ~2% of sales. Retail stores and manufacturing operations were entirely shut during the lockdown as the company was not a part of the essential services.
Titan has started re-opening stores in the non-containment zones after establishing thorough safety protocols. Forty three percent of the stores have re-opened til date. Manufacturing has commenced gradually but is expected to be well below the normal in the near term due to the current inventory and muted demand estimates. There is no disruption in the supply chain.
The reopened stores are seeing ~50% of normal sales currently. But sales are improving gradually. Titan is currently unable to precisely gauge the future impact but expects normalcy to return only after a quarter. Customer sentiment indicates reduced spends on discretionary items. This may impact demand for most products. Lower sales would impact store profitability, and hence, store rollouts would be calibrated in the immediate future.
Titan has comfortable liquidity position due to adequate banking limits. It enjoys highest rating in both short and long-term borrowings. The company has successfully issued Rs 1,000 crore of CPs at attractive rates during April-May. In the last two months, Titan’s OCF was negative due to negligible sales during the first six weeks of lockdown, increase in MTM cash outflow on gold hedge due to rising gold prices, and committed costs being incurred. However, MTM cash outflow should be recovered on jewellery sales in the future. Profitability in H1FY21 is expected to be adversely affected. The company does not see any material risks on receivables or investments.
Caratlane’s operations were hit due to lockdown. Many of its stores are in malls and have not reopened yet. However, it has a good proportion of sales from online operations, which is expected to aid cash flows and profitability. Titan Engineering & Automation has not been hit much by the situation as one of its divisions (aerospace and defence) was categorised essential service. Annual results have been delayed and board meeting for March results is expected to be held in mid June. While our rating is ‘neutral’, its longer-term top line and earnings opportunity remains attractive.