Titan reduces franchisee incentives to expand jewellery margins

Titan has reduced franchisee incentives for Tanishq stores from Q1 FY24, according to checks conducted by Kotak Institutional Equities. This indicates management’s focus on expanding jewellery EBIT margins or defending margins in the event of any rise in competitive intensity, according to Kotak’s analysts.

For L2 or company-owned franchise-operated (COFO) stores, incentives have been reduced by 50-60 basis points from 5 percent levels. COFO stores make for 40-45 percent of Tanishq’s sales.

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For L3 stores or franchise-owned franchise-operated (FOFO) stores, commissions will be reduced by about 100 basis points from 10-11 percent levels.

“On a blended basis, this change would aid Titan’s standalone EBIT margin by about 50 basis points over two years (slightly front-ended),” as per Kotak Institutional Equities.

It essentially allows Tanishq to have a share of the operating leverage benefits garnered by L2/L3 franchisees, it added.

This development is significant in an increasingly competitive environment, with the added pressure of high gold prices likely weighing on near-term demand.

Despite challenging macroeconomic conditions, Titan managed to report a 25 percent year-on-year increase in its top line for the March quarter. The ‘Emerging businesses’ category saw the maximum growth with sales shooting up by 84 percent year-on-year.

The company’s jewellery business grew 23 percent on-year, with 31 new stores being added during the quarter. The watches & wearables segment also did well, registering a 41 percent growth YoY.

The stock remains a preferred ‘Buy’ in the consumer discretionary sector. It was quoting at Rs 2,579.60 on the NSE, trading largely flat with a positive bias.