Titan Company Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Jewellery demand resilient, but mix signals caution: Domestic jewellery grew 15% across all channels, yet entry-level and wedding segments showed pressure while high-value studded surged, suggesting inflation is splitting the consumer base.
• Studded ratio recovery is real but incomplete: The studded mix improved to 35% (vs 41% pre-pandemic in an abnormal Q2 FY20), driven by 25% YoY retail growth and a deliberate high-value studded push that is "still scratching the surface."
• Jewellery margin normalized to 13.3%: The reported 15.3% EBIT margin included ~2% of unsustainable gains from customs duty and diamond purchase timing; the adjusted figure sits comfortably inside the 12-13% medium-term band.
• Price competition has intensified: Every player, organized and unorganized, is fighting to retain customers, and Titan is managing the tension by balancing gold rates and making charges while passing on cost increases in studded premiums.
• What to watch next quarter: Whether the anticipated H2 wedding demand rebound materializes after two muted quarters, whether diamond prices hold at their apparent peak, and how the US store opening in November performs against the GCC stores already trading to plan.

Jewellery Demand: A Split Consumer

• Top-end strength: High-value studded jewellery posted disproportionate growth, with contribution back to pre-pandemic levels after a period of focused effort. The opportunity remains large but gradual, partly constrained by PAN card requirements above certain thresholds.
• Entry-level pressure: Sub-₹50,000 and sub-₹1 lakh segments showed some softness, with growth coming easier in higher segments, possibly reflecting differential inflation impact across income groups.
• Wedding demand muted: Both Q1 and Q2 saw lower wedding buyer incidence; Q2 last year had an elevated contribution from post-Covid catch-up, and the current quarter reverted to the lower share typical of the period.
• Buyer growth engine intact: A 3-year CAGR of ~23% was built on ~17% buyer growth CAGR and ~6% ticket size growth, with new buyer contribution at 46% in Q2, indicating continued market share capture.
• Store-of-value cushion: Jewellery in India behaves differently from discretionary categories elsewhere, with instances of repeat high-value purchases within short periods observed, suggesting no clear satiation limit.

Venkataraman: "And also Percy unlike other expenses, discretionary categories, jewellery is also a store of value. And there have been so many instances where, let's say, yesterday, a woman came and bought something worth 2 lakhs and 20 days later, a beautiful collection comes and the salesperson calls her. And she again buys 2 lakhs worth 20 days later because this is a store of value in India."

Jewellery Margins: The 13.3% Baseline

• Unsustainable gains stripped out: The reported 15.3% EBIT margin included ~2% from customs duty related gains and gains from diamond purchase timing and stocking strategy during a period of rising prices. The adjusted 13.3% is the clean run-rate.
• Studded mix helped: A richer studded ratio in the quarter provided structural support to margins, offsetting some of the competitive intensity on the gold side.
• Medium-term band reaffirmed: Management remains comfortable with a 12-13% jewellery margin range for the next 12-18 months, and the adjusted Q2 figure sits within that band.
• Diamond price outlook benign: Prices are no longer rising; slight softening observed on higher-caratage solitaire but no reduction on small or melee diamonds. Supply remains a little constrained, and the expectation is that prices may have hit the top.

Competitive Intensity & Pricing

• Price war broad-based: Competitive intensity has intensified, with every player, organized, independent jeweller, and regional chain, fighting to retain customers.
• Titan's balancing act: The company is managing via balancing gold rates and making charges. Studded premiums have gone slightly higher as Titan passed on cost increases while the broader market may not have, creating a potential gap.
• Hallmarking tailwind unclear: The broader secular trend of unorganized-to-organized migration continues, but the direct benefit of mandatory hallmarking is difficult to isolate and estimate.
• Market share runway: Titan's ~₹34,000 crores in jewellery sales sits inside a ₹400,000+ crores market, leaving enormous headroom for share gains even as competition intensifies.

Chawla: "Yes. Percy, I think the price competition continues. In fact, it has intensified and every player, whether organized or independent jeweler or a regional chain is now fighting strong to retain their customers. So the price intensity is high - price competitive intensity."

Store Expansion & International Build-Out

• Domestic footprint accelerating: Tanishq added 14 new stores and expanded 11 existing ones by 40-50% area (avg 2,600 sq ft each) in H1. Mia added ~30 stores till October. CaratLane added 20 in H1 plus 13-14 more after.
• GCC stores trading to plan: Multiple stores now operational in the GCC region and performing in line with expectations. Indian franchisees are lining up to partner, and external partners are also being evaluated.
• US store delayed to November: The first US store opening was pushed back by permission-related complications. Trunk shows in New Jersey, Houston, and Dallas have confirmed the potential.
• International billing includes inventory fill: The ~3% of Jewellery business billed from India for international includes inventory filling for new stores, not purely secondary sales, so the revenue line overstates end-consumer demand during the build-out phase.
• FY27 international target: 30 stores and INR 2,500 crores, with run rates consistently happening and the network needing to fall in place.

Venkataraman: "But once we get our first store and become clear about what all is required, I think the ramp-up will begin."

Watches, EyeCare & Emerging Businesses

• Watches & Wearables momentum strong: Strong growth in both Q1 and Q2, with good demand in higher-priced brands, higher-priced products, and premium channels. Brick-and-mortar has come back strongly.
• Watches margin anchor at 13-14%: The business carries high operating leverage, and 13-14% is the better expectation anchor going forward.
• EyeCare growth below expectations: 4.9% sales growth disappointed; July was good but August and September saw sluggish demand as festivities approached and spectacles were not a priority after two disrupted years. The need-based category saw the other side of last year's advantage.
• EyeCare margin target mid-teen: ~15% remains the anchor, though H2 will see more investment in customer acquisition and footprint expansion toward 1,000 stores.
• Zoya scaling fast: FY23 revenue already matched full FY22 (₹135 crores) in the first 7 months, on track for ₹230-250 crores, with potential to become a ₹500-700 crores business over the next few years.
• Taneira franchisee-driven: Franchisee store contribution reached 55%; plan to close FY23 at ~50 stores with 30-35 additional stores in FY24.
• TEAL performing well: Both Manufacturing Services (Aerospace, Defense) and Automation Solution Services did well in Q2, with good order inquiry and booking, though linked to economic cyclicality.

Guidance & Commitments

Key Metrics