Without weddings and fewer Indians in a celebratory mood, Titan’s sales to remain muted for the next 2 years

• Goldman Sachs equity research said Titan would see a slower store addition across categories due to impact of social distancing, weak demand and potential cashflow challenges.
  
• Goldman Sachs equity research also says that the wedding segment of Titan accounts for 35% of the annual sales. Due to the lockdown and social distancing, its wedding sales are affected.
  
• The report also predicts that the discretionary portion of Titan’s jewellery sales which accounts for 65% of the business is likely to see a more sustained impact on demand.

Any other year, this week and this quarter would have been one of Titan’s best. It would be a day after Akshay Tritiya and the traditional wedding season that lasts from February to May — would be at its peak.

This time around, not only are their stores shut due to the lockdown for over a month, many people have postponed weddings. It affects the jewellery and watch-maker greatly as 35% of its annual sales come from weddings.

And the business was going good until the Great Lockdown and Covid-19, disrupted it, the company said.


But it’s not just wedding business that it stands to lose. Going ahead, fewer people will care to buy jewellery for occasions or otherwise. As a result, Titan’s share price plunged over 21% in the last three months.

“We believe the disruption being caused by the COVID 19 driven lockdown is not transient in nature and could have a prolonged impact on discretionary demand growth over the medium term,” said Goldman Sachs report which downgraded the stock from neutral to sell.


Moreover, Titan businesses will offer lower returns due to weak sales. The report expects Titan to optimise costs through lower ad-spends. In spite of that, it still expects its jewellery profit margins to decline to 10.3% in FY21 from 11.3% in FY20E due to operating leverage.

Even if weddings restart in all their splendour, sales of jewellery will not pick up according to Goldman Sachs equity research. The economic slowdown and the resultant job loss and pay cuts has already hit consumer confidence and discretionary spends will be the worst hit.

“We expect the current uncertain macroeconomic environment will lead to lower consumer expenditure on weddings over the next few quarters,” cited the Goldman Sachs report.

Goldman Sachs equity research predicts that the discretionary portion of Titan’s jewellery sales which accounts for 65% of the business will be affected for a long time.

“Indian jewellery demand has a positive correlation with real GDP growth,” the report said. The research firm forecasts Indian GDP to grow at -0.4% indicating Titan’s sales will remain muted for the next two years.

Long-term destruction

Titan itself has admitted this. “Consequent to the serious disruptions in operations in March, revenue growth for the quarter and consequently for the year has been impacted severely,” the company said in its quarterly update

Titan, which was on a growth path, will have to pull back its plans. “Titan would see a slower store addition across categories due to impact of social distancing, weak demand and potential cashflow challenges at franchisee partners during the pandemic,” the report said.

“We now expect only 75 new stores in FY21/FY22 combined vs our expectations of 100 earlier in February 2020,” cited the report.

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