Titan Company Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Exceptional quarter, broad-based strength: Jewellery, Watches & Wearables, and EyeCare all delivered strong operating leverage, with Jewellery EBIT margin boosted by a one-time 80-90 bps gain that will not recur.
• Jewellery buyer growth is robust but polarized: Buyer growth over FY20 is 26%, driven by higher ticket sizes and studded traction, while entry-point customers were muted post-Akshaya Tritiya and are expected back during the festive season.
• Watches & Wearables margin hits a sustainable 13%: Operating leverage, brand mix favoring Titan, and channel mix drove the expansion; wearables is a lower-margin category than watches, but scale leverage from explosive growth can deliver attractive business margins earlier than higher product-margin categories.
• Aggressive store expansion across every business: Tanishq targets 35-50 new stores, CaratLane, Taneira, EyeCare, and Watches are all pushing expansion, and international plans are accelerating with a 4th GCC store and US entry.
• What to watch next quarter: Whether entry-point jewellery customers return during August festivals, the pace of diamond price increases and their pass-through, and the Q2 store opening delta which management expects to more than double Q1.

Jewellery: Margins, Mix & the One-Time Gain

• EBIT margin beat, but guidance holds: The quarter benefited from operating leverage, a richer product mix including differential margins within studded, and a one-time gain of 80-90 bps from diamond prices and spot gold purchase/forward contango sitting in AGC but compensated through other income. Full-year EBIT margin guidance remains 12-13%.
• Studded traction is a margin tailwind: Greater traction on studded jewellery and higher ticket sizes contributed to the richer mix, while the Q2 studded activation commenced mid-July as in previous years.
• Diamond prices are a sustained tailwind with a shelf life: Prices have seen significant upside with increases taken in November, January, and March; management feels prices are not coming down in a hurry and the gain may spill over into Q3, with possible further price increases by end of quarter.
• Making charges strategy balances premium and funnel: The company needs to do more in affordable making-charge segments to keep new buyer inflow healthy, while operating at a premium to the market across price bands and product categories.

Sonthalia: "No, I think we are okay, with our guidance quarter-on-quarter and as I explained you in my earlier answer that there is a one-time sitting here. So I think our guidance remains 12-13% EBIT margin for Jewellery business."

Jewellery Demand: Polarization & the Growth Engine

• Buyer growth is strong but skewed: Buyer growth over FY19-20 Q1 stands at 26%, with very good traction on higher ticket sizes and higher values. Lower price points on gold (below 10-15 grams, everyday wear) are growing but not as fast as the rest.
• Entry-point customers paused after Akshaya Tritiya: They came in good numbers during the festival, then turned muted; management expects them to return during August festivals and the festive season, and does not see serious stress in the low-price band.
• Growth engines are structural, not cyclical: Renewed focus on lower ticket size ("core") to strengthen the funnel, digital built up as a solid engine at 6% of topline, and winning in low-share markets (South and parts of East) are showing exceptionally good traction.
• The 20% CAGR ambition is backed by formalization tailwinds: Headroom for growth is seen as huge, and the high base from last year is framed as an opportunity with more stores firing well, not a headwind.
• Inventory bet is deliberate: Capital employed in Jewellery is up due to an aggressive inventory position taken for growth; going deeper into small towns, communities, and pursuing wedding and high-value studded agendas means stock turns on some products will be lower, though trailing 12-month stock turns are actually better.

Chawla: "It is an opportunity, I would look at it as now we have so many more stores, so many more stores firing so well. All engines working well, why not go for the accelerator."

Watches & Wearables: Volume, Value & Margin Sustainability

• 108% volume growth is base-effect arithmetic: The disrupted Q1 FY22 base drove the headline number; value growth is the real driver, with NSV growth of 165-170% over last year translating to 22% over FY19-20, a healthy double-digit rate the division targets year-on-year.
• Fastrack watches grew 120% YoY: Driven by a big thrust in lower-price economy entry-price products and the Stunnerz campaign; Fastrack Smart watches are also doing very well with Fastrack Vox and two new Q1 launches.
• Wearables margin is sustainable at 13%: Operating leverage is the main contributor, along with product brand mix and channel mix; brand Titan, a higher-margin brand, is powering growth. Wearables is a lower-margin category than watches because watches command a premium from three decades of market leadership and an optimized value chain, while wearables is currently playing for growth and consumer acceptance.[11-12]
• Scale leverage can compress the margin gap: While product margin in wearables is lower, the explosive growth potential means scale leverage can deliver an attractive business margin down the road earlier than in categories where product margin is higher.
• Product pipeline is active: Three smart watches launched this year, four more lined up for August in the ₹3,000-10,000 range; hearables launches are lined up for Q3, with the Hyderabad Development Center working on consumer-insight-led products solving pain points.

Mitra: "Is it sustainable? Yes, I think this 13% rate is sustainable."

Store Expansion: Every Business, Every Format

• Tanishq targeting 35-50 new stores: The full-year target is 35-40, possibly up to 50 if right properties and execution align; Q2 is expected to see more than double the Q1 delta in both Tanishq and CaratLane.
• CaratLane margin path is a 3-5 year story: Over a long-term horizon, double-digit EBIT margin is achievable; the business is currently investing in talent, digital, stores, and marketing. No current plan to increase Titan's stake.
• Taneira is scaling quietly: Six new stores opened in Q1; the franchise model is currently consignment/management-agent and moving to a buy-and-sell model in the near future. Separate disclosure will come when the business has ramped up to a meaningful level.
• Fastrack is expanding beyond watches: Fastrack Girls bags are seeing very good response, expanding into Lifestyle and Shoppers Stop, running at 60+ stores with solid growth momentum. Fastrack prescription eyewear is scaling to 25 stores across the country soon.
• International is set to gallop in 2-3 years: The 4th GCC store is opening imminently; US planning is more aggressive, with mostly 2 stores in FY23. Store-level breakeven outside India is expected to be as good as India because scale economies are better; business-level breakeven is targeted at the third or fourth full year.

Venkataraman: "Across the board Percy, everyone is pursuing a very very aggressive because Titan has never relaxed on that front because this is from a medium-term opportunity point of view. So, we are pushing all the buttons in Taneira, in EyeCare, in Watches, in Jewellery, in every business CaratLane all brands, Zoya so everywhere we are pushing the buttons on expansion."

EyeCare & Other Businesses

• EyeCare margin structure is proven and sustainable: 64-65% gross contribution has been demonstrated over several quarters, driven by house brand focus, channel mix, in-house production, and India sourcing. PBT percentage is anticipated in the ballpark of 15%+, and anything over 15% is the sustainable margin projection going forward.
• Fragrances and Taneira also performed well in the quarter, alongside the core divisions.
• Golden Harvest enrollments picked up very well and should see good progress going forward.

Guidance & Commitments

Key Metrics