Home > market > mark-to-market > Gold lost some glitter for Titan in the March quarter

The watches business had pulled down Titan Co. Ltd in the December quarter. Unfortunately, it continued for the March quarter too, suggesting that demand continues to be lacklustre. Volumes declined by 6% in March quarter, a notch worse than the 4% decline seen in the three months ended 31 December.

While better prices helped the company grow watch business revenues by 2% year-on-year, profitability was weak with earnings before interest and tax (Ebit) falling by about 19%.

Watch Ebit margins were sequentially stable at 9.8% but they are still lower than the previous 10 quarters at least, according to the company’s investor presentation.

The saving grace in the December quarter was the jewellery business had compensated for the under-performance of the watch business. However, that hasn’t been the case in the March quarter.

The jewellery business performance, too, was weak last quarter. Titan’s jewellery business revenue declined by 15% in the March quarter and accounted for 73% of the total revenue. Ebit growth though was a mere 1.2%.

According to Titan’s presentation, gold demand in January and February was impacted significantly due to expectation of customs duty cut and a pickup was witnessed in March after the clarity on customs duty in the national budget.

Also, lack of redemptions from the Golden Harvest Scheme affected Titan’s jewellery business revenues.

The upshot: Titan’s revenue for the March quarter declined by 11% over the same period last year to 2,496 crore while net profit improved by 4% to 215 crore, primarily helped by decline in tax outgo.

Still, those numbers are below Street expectations. A Bloomberg poll of analysts had pegged Titan’s revenue at 3,034.20 crore and net profit at 229.80 crore.

The company enjoyed lower tax rate due to higher benefits from its Pantnagar jewellery plant and deferred tax benefit. While net profit increased, weak operating performance meant that Titan’s pre-tax profit declined by 10%.

To be sure, analysts weren’t expecting an earth-shattering quarter but the company’s performance has disappointed even those low expectations. “Earnings downgrades are likely to happen," said an analyst after the results announcement.

Weak demand has weighed on the stock this year. Titan’s shares have declined by 3% so far in 2015, closely tracking the S&P BSE 100 index, which fell by 2.4% during the same time frame.

Currently, the stock trades at 31 times its estimated earnings for this fiscal year. If those valuations have to sustain, there is no way out but for demand to improve.

The writer doesn’t own shares in the above-mentioned companies.

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