Titan's jewellery business braves economic slowdown storm in Q3

Recovery in growth of Titan’s jewellery business in the December quarter (Q3), despite the weak consumption scenario, was the key takeaway in the December quarter results.

Therefore, despite a tad lower-than-expected Q3 numbers, the Titan stock surged 7.6 per cent to Rs 1,275.5 apiece on Tuesday. The bullish trend in the market (Sensex was up 2.3 per cent), too, supported the stock.

On a stand-alone basis, while Titan clocked an 8.4 per cent year-on-year (YoY) rise in net sales to Rs 6,106 crore, its profit before tax (PBT) grew 6.3 per cent YoY to Rs 637 crore.

Analysts were anticipating these two figures at Rs 6,251 crore and Rs 685.7 crore, respectively.

Following a 1.5 per cent YoY fall in the September quarter, Titan’s jewellery business (80-85 per cent of overall sales and operating profit), grew 10.6 per cent YoY in Q3.

A good product mix, with higher share of studded jewellery, led to the sales uptick for the jewellery business. Like-to-like sales of Titan’s Tanishq store moved up to 9 per cent in Q3, from 2 per cent in Q2. The watches and eyewear segment performed relatively poor in Q3, with a 2.4 per cent YoY decline and about 3 per cent YoY growth in sales, respectively.

Despite good demand for high margin studded products, Titan’s Ebitda (earnings before interest, tax, depreciation and amortisation) margin saw limited improvement of 73 basis points YoY, to 11 per cent. This was on account of higher store commission and high gold prices. Unlike the year-ago quarter, Q3 witnessed good contribution of L2 stores (company-owned inventory but operated by franchisee), which typically attract higher commission outgo.

However, in the March quarter, the overall operating performance mainly of jewellery business is expected to improve. According to Priyank Chheda, analyst at Reliance Securities: “Given the higher number of wedding days in the March quarter, demand for high-margin studded jewellery is expected to be better. This should propel the overall operating performance of Titan.” Store expansion and profit contribution by CaratLane would be the other trigger for Titan.

While the management has maintained its jewellery growth target at 11-13 per cent for the October 2019-March 2020 period, higher prices impacted customer footfall initially in January.

Thus, the gold price trend is crucial for the stock, which is trading at a valuation of 55x its FY21 estimated earnings, which is 28 per cent higher than historical long-term average.

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