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Volatile gold prices dull Titan Industries

Volatile gold prices dull Titan Industries
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First Published: Sun, Dec 18 2011. 10 40 PM IST

File photo of Titan’s Tanishq jewelry store in Mumbai. Bloomberg
File photo of Titan’s Tanishq jewelry store in Mumbai. Bloomberg
Updated: Sun, Dec 18 2011. 10 40 PM IST
Since the beginning of this quarter, the stock of Titan Industries Ltd has fallen 23% to Rs 161. In comparison, the BSE-100 Index of BSE Ltd has declined 7% during the same time frame.
Titan’s valuation has been hit by the impact of higher gold prices on demand for its jewellery business; and, on the other hand, a weak rupee is resulting in an increase in import costs for its watches business.
File photo of Titan’s Tanishq jewelry store in Mumbai. Bloomberg
The weak rupee is also offsetting the decline in international gold prices; for the Indian consumer, gold prices still appear high.
According to the company, while jewellery sales were strong in October on account of festive demand, sales have been slower in November.
Given the current situation, that should not come as a big shock for investors.
Even as higher gold price remains a concern, it appears that consumers are shying away more due to the volatility in the gold prices.
In an interview to CNBC-TV18 earlier this month, Bhaskar Bhat, managing director, Titan, said that consumers stay away from jewellery purchases because they are finding gold prices unpredictable and volatile.
The company is confident of delivering on its revenue growth forecast of about 30% for this fiscal.
That looks manageable, considering revenue increased 61% and 36% year-on-year in June and September quarters, respectively.
Last month, Titan acquired Swiss brand Favre Leuba for €2 million and expects the transaction to complement and strengthen its existing watches brand portfolio.
“As part of the acquisition, the company will get access to designs and technology,” wrote JPMorgan Chase and Co. analysts in a note on 28 November.
At the current market price, Titan’s shares are trading at around 20 times its estimated earnings for the next fiscal year.
While most of the concerns seem to be factored into the stock price at the current level, especially for investors with a long-term view, near-term triggers appear limited.
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First Published: Sun, Dec 18 2011. 10 40 PM IST