Rising gold prices may take toll on Titan’s jewellery sales volumes

Rising gold prices may take toll on Titan’s jewellery sales volumes

Let’s face it: Indians love gold. But the current price of the yellow metal hardly offers any comfort. The recent rise in gold prices is likely to have affected demand.

In an interview with CNBC-TV18 news channel on Monday, Bhaskar Bhat, managing director of TitanIndustries Ltd, said the three-month period to June was a strong wedding season, but thereafter the reasons for buying gold have diminished. This, he said, along with the high price of gold, has reduced demand.

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The company delivered a spectacular set of financial results for the quarter ended June, with stand-alone revenue and net profit rising 60% and 76%, respectively, on a year-on-year basis.

Growth was primarily driven by a strong performance from the jewellery business. In the June quarter, the jewellery business formed about four-fifths of Titan’s total stand-alone revenue.

The same business had contributed about three-fourths to the company’s consolidated and stand-alone revenue last fiscal year.

Many analysts say the recent sharp rise in gold prices will certainly affect Titan’s jewellery sales volumes in the current quarter, but the impact is difficult to quantify. At the same time, higher prices are expected to support price realizations.

“Historically, whenever gold prices have declined or increased sharply in a short span of time (such as now), consumers have adopted a wait-and-watch approach. This could likely affect demand in general and Titan is no exception to that," says Manoj Menon of Kotak Institutional Equities. “However, better price realizations may offset the impact of lower sales volumes to some extent."

Further, the September quarter normally tends to be somewhat lean and things generally look better in the festival season (reflected in the December quarter). Considering that, perhaps the impact of higher gold prices—if they remain at these levels or rise further—on sales volume should be clearer in the December quarter.

On the other hand, the watch business, which accounts for most of the remaining revenue of the company, could be affected if discretionary spend reduces on account of the overall economic slowdown.

In fiscal 2012, the company is looking at 30% growth in revenue and net profit. After a fantastic first quarter, analysts are optimistic that Titan would be able to deliver on that comfortably.

The Titan stock has outperformed the BSE-100 index in the last one year. However, the concerns cited above are likely to weigh on the stock performance in the near term and limit gains from the current levels.

Graphic by Yogesh Kumar/Mint

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