A golden quarter for Titan
Titan Co. Ltd’s quarterly earnings have time and again confirmed the old adage about Indians loving gold. The September quarter numbers were no different, with the company, which derived as much as 79% of its stand-alone revenue from the jewellery business, surprising positively on many counts.
The jewellery segment performed exceptionally well and saw 36% year-on-year revenue growth. Performance was helped by the fact that the festive season was ahead this year, compensating for lower sales in July.
“New customers accounted for 50% of the customer base which implies market share gains,” wrote analysts from Ambit Capital Pvt. Ltd in a report on 4 November.
Titan maintains that wedding jewellery and high-value studded categories are growing very well and have contributed significantly to market share gains. These factors helped gold grammage rise by 49% for the second quarter in a row. The upshot: jewellery segment Ebit (earnings before interest and tax) margin increased by 260 basis points to 13.5%. A basis point is 0.01%.
Note that the June quarter numbers had included about Rs250 crore owing to goods and services tax-related advancement of sales. Further, in the September quarter, there was the adverse impact of the application of the Prevention of Money- Laundering Act (PMLA) to deal with. Against that backdrop, the company’s jewellery segment performance looks rather impressive.
The watch business, Titan’s second major revenue contributor, too fared well registering 42% rise in its Ebit. However, exports continue to remain a drag in this segment.
Overall, Titan’s earnings before interest, tax, depreciation and amortization increased 55% year-on-year, much ahead of analysts’ estimates. A 31% decline in other expenses also supported profitability.
Investors have little to complain of. So far this fiscal year, the Titan stock has appreciated as much as 43%, more than the 15% gain in the S&P BSE 100 index. At the current market price, the stock trades at about 45 times one-year forward earnings. Earnings are expected to grow by about 30% for the next two years, which means the stock’s not cheap. Having said that, in a market where benchmark indices are touching new highs every other day, investors are unlikely to be overly concerned about high valuations.
In fact, the September quarter results should keep sentiments positive from a near-term perspective. Analysts are upbeat. “New product launches, store expansion (17 new stores in H2FY18), and consistent increase in market share are expected to drive growth,” pointed out Emkay Global Financial Services Ltd in a report on 3 November. The brokerage firm expects a revenue CAGR (compounded annual growth rate) of 23% during FY17-20, driven by a 26% CAGR in the jewellery revenues.
Moreover, consumers will not have to provide their PAN card details for purchasing jewellery over Rs50,000 after the government’s decision to remove the jewellery sector from the purview of PMLA in early October. This is expected to help Titan.