Titan Company Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Jewellery margin guidance held at 12-13% for FY24: Q1 margin of ~11% was in line with historical seasonality, and management expects the full-year number to land within the guided band, driven by a richer studded mix in upcoming quarters.
• Gold price volatility met with a tactical exchange program: A sharp gold price rise and volatility in Q1 prompted the launch of a gold exchange program in late May, which successfully revived demand without structurally diluting margins.
• CaratLane growth moderated on investment spend: Slightly lower growth and a margin dip reflected ongoing investments in people, assets, and technology; management is committed to a growth recovery in Q2.
• Revenue growth is the primary focus, not margin expansion: Management explicitly prioritised top-line growth, stating that profit growth will follow, but declined to guide whether earnings growth would exceed revenue growth each year.
• What to watch next quarter: Whether CaratLane’s growth rate recovers as committed, the pace of international store additions against the accelerated ambition, and the trajectory of studded jewellery activation through the festive buildup.

Jewellery: Margin, Mix & the Gold Price Response

• Q1 margin seasonality: Jewellery margin was ~11%, consistent with the Q1 range of the prior 3-4 years; the full-year guidance of 12-13% is maintained, with higher studded ratios expected in Q2 and Q4, and the urban wedding season in Q3/Q4 improving product mix.
• Year-on-year margin decline explained: Q1 FY23 included a 1% one-time gain; Q1 FY24 also absorbed investments in pricing competitiveness, marketing communications, and the gold exchange program.
• Gold price volatility shaped demand: A significant and volatile gold price rise led to an intentional response to solve consumer uncertainty; demand was slow in early April, picked up during Akshaya Tritiya, went quiet in May, then revived from ~20th May onward after the exchange program launch, with June continuing to grow strongly.
• Exchange program is not structurally margin-dilutive: Exchange gold is bought from the customer at the same rate it is sold, and the transaction is offset by upselling (customers trading x grams buy y grams) and processing charges; margin dilution only occurs when running aggressive promotional offers.
• Wedding segment performed in Q1: Q1 is a good lagan market, and eastern markets (Bihar, Eastern UP, MP, Chhattisgarh, Jharkhand) saw good traction, compensating for wedding season timing elsewhere.
• Three levers protect margin going forward: Geography and channel mix delivering richer product mix and realisation, product mix improvement on studded, wedding, and occasion wear, and lightweight and modern jewellery offering an opportunity to take up gross margin.

Ajoy Chawla: "So by itself, exchange is not margin dilutive, I wanted to leave that thought behind."

CaratLane & the Growth Investment Cycle

• Growth moderated on deliberate investment: CaratLane’s slightly lower growth than usual was attributed to continuing investments in people, assets, and technology; the margin fell because of lower growth plus those ongoing investments.
• Recovery commitment is explicit and near-dated: Management stated the prospects for CaratLane are exceptional and committed to returning to the prior growth rate in Q2 itself.
• TEAL capital position: TEAL has a very strong order book; necessary investments are being funded through borrowing and internal generation, with no further equity required from Titan or a need to raise externally.

C K Venkataraman: "The prospects for CaratLane are exceptional, and we are committed to sort of coming back to that growth rate in Q2 itself."

Watches & Wearables: Margin Drag & Inventory Build

• Margin hit from one-time provisions: Watches & Wearables margin was 11.8%, impacted by onetime provisions for developmental costs and smartwatch-related items; international brands within the division carry a healthy margin.
• Capital employed rose on inventory and channel mix: Inventory buildup was for the festive season (Dussehra, Diwali), and higher debtors resulted from differential sales in channels where marketplace e-commerce and large format stores ran higher than budget; inventory is expected to remain high till Q2 end.
• Volume dynamics are complex: Analog volumes declined in the youth segment (Fastrack), while wearables saw a significant volume increase; the interplay between volume, value, analog, wearables, premium and mass brands makes the picture complex.
• Wearables are additive, not cannibalistic: Management stated watches and wearables are not substitutes, as customers buy for completely different reasons; any profits from wearables add to division profit, and margins in wearables are quite good.
• Full-year margin expectation: Watches & Wearables margins are expected to be 12-13% through the year.

International Expansion: Accelerating Ambition

• Store rollout on plan and accelerating: Currently 7 Tanishq stores (1 in US, 6 in GCC); the plan is to add 5 more in the US and 13 more in the GCC region for the rest of the year, reaching 24-25 stores.
• Original guidance looks beatable: The original target was 30 stores by FY27 with INR 2,500-3,000 crores top line; management indicated it looks like they can do better than planned and will accelerate as much as possible.
• Template-first scaling strategy: The approach is to build replicable templates, refine them until reasonably confident they can be scaled without creating problems, then expand; new markets like Singapore and Australia are being evaluated for replication and scaling.
• Customer strategy starts with the diaspora: The current focus is the Indian diaspora, an easier audience familiar with the brand and underserved; in some locations like Abu Dhabi, non-Indians are already turning up, and a second phase will explore beyond the Indian diaspora.
• International margins are healthy: From a PBT standpoint, the overseas business should be at least as good as India; the mix of more profitable categories is better, and while the GCC still sees a large share of gold, the North America new store has the highest studded ratio; final gross contributions are better than India, compensating for higher cost.

Kuruvilla Markose: "The approach is to build templates that can be replicated first, sort of refine the template till we are reasonably confident that those can be scaled without creating problems."

Market Share & Brand Building

• Jewellery market share ambition is quantified: Management aims to gain one percentage point year-on-year and reach double-digit market share in the next 3-4 years.
• Regionalisation program is broadening: The jewellery regionalisation program extends across many markets, not just the South; parts of the East, Bharat markets, and other markets are in the pipeline to come alive in the next couple of years.
• Brand building on four dimensions: Regional campaigns with regional collections (Tamil Nadu, Odisha with temple-inspired collection); high-value studded collections launched in June/July (Impressions of Nature, Tales of Mystique) with 3-4 campaigns per year; Rivaah wedding segment with a 360-degree approach including 16-city BTL activity; and an exchange marketing campaign focused on excitement and participation, not offers.
• Customer trust advantage post-COVID: Customers always seek good deals, but post-COVID preference for trusted brands has gone up significantly; Tanishq has grown handsomely during and post-COVID, and price-offs and making charge-offs will continue.
• Store expansion pipeline is large: Management has identified a potential list of stores across many towns and catchments as a longer-term 2-year plan and is looking at accelerating expansion plans due to the large opportunity.

Ajoy Chawla: "We think we can aim to get to a double-digit market share in the next 3, 4 years. And that's the aspiration we've set ourselves."

Capital Employed & Channel Dynamics

• Jewellery capital employed rose on lower GOL contribution: The gold on lease (GOL) contribution reduced to ~27% by quantity versus a typical 50% range; inventory was as per plan and stock turns were good.
• Gold mark-up rationalisation is complete: The entire gold pricing hit is borne by Titan, not franchisee partners; what needed to be done has been done, and management is not seeing more rationalisation, though there is opportunity to keep correcting upward or downward.
• Regional margin construct varies: A direct correlation between market share and margins cannot be drawn; in Chennai, making charges are lower than Ahmedabad but the share of company stores is substantially higher, reducing the cost of retailing; the share of profitable categories within each market also varies.
• July momentum is strong: July has been as good as Quarter 1, against a base that had an Adhik Maas last year; studded activation has kicked off very well and is the biggest growth engine this quarter.

Guidance & Commitments

Key Metrics