The Titan Co. Ltd stock closed 4% lower on 1 February on BSE. The company’s December quarter results, which missed expectations, were announced a few minutes before the equity markets shut that day. The overall pressure on broader markets ensured that Titan shares fell a further 3.3% in the last two trading days.

Titan is one of the darlings on the bourses, what with a mouth-watering 74% appreciation so far this fiscal year despite the losses in the last three trading sessions. Undoubtedly, valuations at 49 times expected earnings for FY19, based on Bloomberg data, are pricey.

Market share gains from the unorganized sector and healthy demand for its flagship jewellery business have kept the shares in favour. “Titan has witnessed market share gains consistently over the past few quarters, growing by over 30% in the months of November and December," wrote analysts from Emkay Global Financial Services Ltd, commenting on the jewellery business. The brokerage firm believes that new launches, store expansion and sustained increase in market share will drive sales growth by 22% compound annual growth rate over FY17-20E.

It is encouraging that Titan has maintained its jewellery segment revenue growth guidance at 25% for FY18 despite weaker-than- expected numbers for the December quarter. The company’s jewellery business faced a high base, as the festival season in the December 2016 quarter was a strong one with Dussehra and Diwali falling in the same quarter.

On a consolidated basis, jewellery revenues rose by 8% year-on-year for the December quarter. This pales in comparison to the 37% growth in the September quarter and a far higher 56% growth in the June quarter. Primary jewellery sales growth was slower, as primary billing was much higher towards the end of the September quarter in anticipation of the festive season. However, retail sales growth at 15% wasn’t disappointing given the high base.

Titan’s second key business—of watches—delivered a satisfactory performance. While watch revenue growth was 4.7%, the company said that if figures were restated for excise duty corrections, the growth in the quarter comes to 11%.

Overall, gross margin improvement and better operating efficiencies resulted in 21% net profit growth in the December quarter.

In future, investors should watch the extent of market share gains. Nevertheless, the sharp outperformance in the Titan stock vis-à-vis the benchmark Sensex suggests the price reflects most of the optimism.

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