Coronavirus Lockdown Likely To Adversely Impact Titan's FY21 Revenue

The lockdown has adversely impacted Titan’s sales in March, with the company reporting a 5 per cent decline in the jewellery division for the quarter (Q4) on account of supply-side disruption and closure of retail stores.

Growth in the segment, which accounts for over 80 per cent of the consolidated sales, was robust in January and February, thus leading to a 16.5 per cent growth in revenues.

Titan indicated that due to serious disruptions in operations in March, revenue growth for Q4 and FY20 as a whole has been hit severely. Brokerages believe the impact could be more severe going ahead.

Typically, the June quarter accounts for 24 per cent of revenues, and is a significant quarter, given the wedding season that follows right after. Though sales of diamond-studded and wedding jewellery were robust till the disruption, the loss in sales due to cancelled weddings and delayed store expansion will weigh on revenues in FY21. The company added 151,000 square feet of space in the quarter, which included 40 Tanishq stores. While some brokerages expect jewellery sales to fall 40 per cent in the June quarter, much depends on when the lockdown is lifted.

Motilal Oswal Financial Services say the disruption will strongly impact business considering Titan’s extensive presence in malls, which have been shut. Even after the lockdown ends, footfall in malls is likely to be low as people continue to maintain social distancing, adds the brokerage. On its part, the firm is looking at ensuring adequate liquidity (supply chain and front-end), coupled with a focus on keeping costs lower during this period. Though the near-term outlook is hazy and will hit all divisions including jewellery, watches, eyewear, and new businesses, the Street believes the company will be among the first to recover, considering past instances.

While sales for most retailers across segments were subdued in the quarters following demonetisation, Titan reported 34-46 per cent sales in the three quarters that followed Q3FY17. The other trigger will be the ability to gain market share.

Analysts at Kotak Institutional Equities highlight Titan’s improved competitive positioning vis-à-vis competitors, especially regional players that have much weaker balance sheets and have been challenged for growth capital over the past few years.

Leverage ratios for such firms could rise substantially, increasing their challenges on the growth capital front, they add. Notwithstanding a poor March quarter and near-term worries, the stock gained a 11 per cent, even as the benchmarks were up 4 per cent. Most brokerages believe that valuations, prior to Thursday’s recovery, were turning attractive for the jewellery segment leader.

Excluding Thursday’s gain, the stock had corrected about 27 per cent since the beginning of March.

Analysts at Emkay Global, in an April 8 note, had said Titan was an attractive bet, given its stronger franchise and its B/S, which provide the ability to weather the storm compared to peers.

Market share gains after normalcy resumes and pent-up demand in jewellery may restrict further downside to FY22 forecasts, even in the case of an extended lockdown.