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Titan: neither gold nor watches glitter

What should worry shareholders more is the regulatory uncertainty risk that surrounds the business
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First Published: Sun, Sep 08 2013. 04 40 PM IST
With the rupee depreciating so much, the watch business runs the risk of higher costs, which are likely to play out in the next couple of quarters. Photo: Ramesh Pathania/Mint
With the rupee depreciating so much, the watch business runs the risk of higher costs, which are likely to play out in the next couple of quarters. Photo: Ramesh Pathania/Mint
Updated: Sun, Sep 08 2013. 11 53 PM IST
What happens when more people are getting married and gold prices are lower? Apparently, many of us will rush to buy gold jewellery, and that’s what worked in favour of Titan Industries Ltd in the June quarter. The jewellery business—the company’s major revenue contributor—saw a remarkable 67% jump in sales volumes in the June quarter, way better than the previous two quarters. But sadly, a repeat performance won’t happen this quarter.
For one, gold prices have increased, which means consumers will shy away from purchases and volume growth should taper. Secondly, this quarter is really not the best season for Titan. It also means the watch business performance is likely to be uninspiring. With the rupee depreciating so much, the watch business runs the risk of higher costs, which are likely to play out in the next couple of quarters. Needless to say, shareholders would now be looking forward to the December quarter performance, which is generally better on account of the festival season.
What should worry shareholders more is the regulatory uncertainty risk that surrounds the business. The Reserve Bank of India (RBI) has prohibited the gold-leasing scheme. In this situation, Titan will have to depend on bank borrowings and that could affect return ratios. “The impact on the profit margins would depend on both the borrowing rates and the hedging premium/discount we could get,” says S. Subramaniam, chief financial officer, Titan.
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Brokerages wasted no time to check their ratings and earnings estimates on the stock following the RBI announcement in mid-August. The Titan stock has declined by 15% since then. What’s encouraging, however, is the fact that the company is looking at other avenues of growth. Titan plans to enter the helmets, fragrances and accessories space in the coming quarters to de-risk its business. That should offer some comfort to investors but the weak near-term operating environment and regulatory risks should keep sentiment muted for the stock in the near future. Moreover, if RBI does not see the desired correction in gold imports, then chances of more regulatory measures cannot be ruled out.
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First Published: Sun, Sep 08 2013. 04 40 PM IST
More Topics: titan | gold | watches | jewellery | mark to market |
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