Titan Co. Ltd’s pre-quarterly update for the December quarter brought cheers for investors. The company said there was good growth momentum across all its businesses in the seasonally strong third quarter. On a day when broader markets were upbeat, Titan shares touched a high of 964 on Monday during market hours, up 3.8% over Friday’s closing price.

The company said it expects the full-year growth in its jewellery business to be around 22%. This assumes 29% sales growth in the second half of 2018-19.

This is good news considering that the performance of Titan’s mainstay jewellery business hasn’t been particularly impressive for the first two quarters of FY19. During the June quarter, jewellery growth was slow on a high base and fell short of the management’s internal targets. In the September quarter, the business margins had contracted. For the half-year ended September, jewellery revenue increased by about 16% over the same period last year.

To be sure, management comments regarding this year’s festival season were upbeat during its September quarter earnings call. “The Dussehra, Diwali season performance has been very-very encouraging, we are in the (+25%) growth rate in this 30-day period," Titan had said during its second quarter call. In that sense, its update on the December quarter may not come as a big surprise for investors. Nonetheless, it does instil some confidence.

On the flip side, outlook on the watch business is not as rosy. “With significantly higher spends on advertising, the EBIT margins in the watches segment will be substantially subdued in Q3," says the company. Ebit is earnings before interest and tax.

Eventually, the Titan stock closed 1.7% higher on Monday at 944. So far in FY19, it has marginally underperformed the Nifty 500 index by 1.7%. Valuations are on the higher side with the stock trading at 46 times estimated earnings for FY20, shows Bloomberg data.

Titan is expected to be a key beneficiary of the shift to the organized market. But the stock’s high valuation suggests a good portion of the optimism is baked into the price.

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