Near-term sentiment muted for Titan Industries

Indians are a sentimental lot, and more so when it comes to the yellow metal. But for some time now, higher gold prices have taken a toll on demand.

According to a World Gold Council report released last month, world jewellery demand for the March quarter declined by 6% on a year-on-year (y-o-y) basis to 519.8 tonnes. “Looking at jewellery demand across the individual markets, demand was weaker y-o-y in all but six countries, with India largely responsible for the decline (19% decrease in demand in the March quarter),” the report said.

Watch Video

According to a World Gold Council report released last month, world jewellery demand for the March quarter declined to 519.8 tonnes. Mint’s Pallavi Pengonda says Indian consumer shying away from gold purchases is bad news for Titan Industries and is reflecting in the company’s financials.

Loading video

While the Indian consumer is shying away from gold purchases, this is obviously bad news for Titan Industries Ltd and is reflecting in the company’s financials. To be fair, Titan has done comparatively better in the March quarter—its jewellery business volumes fell by 7% on a y-o-y basis. But for three quarters now, the company’s jewellery business volumes have been weak.

At the same time, higher gold prices boosted value growth, resulting in 30% increase in jewellery business revenue in the March quarter. This business formed 78% of Titan’s revenue in the March quarter.

While that offers comfort, analysts suspect revenue growth will start to taper off around the second half of this fiscal year. What could arrest the slowdown in revenue growth to some extent is that the company is expanding and intends to open more stores in its jewellery and watch (its second major segment) businesses.

Operating profit margins are expected to be under pressure in the short run because of roll-out costs. But in the long run, the expansion would drive growth and Titan would be better placed when the macroeconomic scenario revives.

Titan’s watch business had performed comparatively better than the jewellery business in the March quarter. However, the watch business outlook in the short term is not particularly exciting. One reason is the depreciation of the rupee, which will lead to higher import costs. Also, the economic slump is beginning to affect the consumer, too.

After underperforming the benchmark Sensex index in the December quarter, the Titan stock has outperformed since the beginning of this calendar year. At Rs 218, the stock trades at 26 times its estimated earnings for the current fiscal year. Valuations appear steep considering the concerns on both major businesses in the short run.

Also See | Quarterly performance (PDF)