Titan Co. Ltd’s profit wasn’t boosted by the jewellery business this time around. Growth in the segment slowed to 5.7% year-on-year for the June quarter (Q1). Sure, the base was high. Even so, jewellery segment performance fell short of the management’s own internal targets and disappointed the Street. For the sake of comparison, the segment had seen 24% growth for fiscal year 2018.

As mentioned earlier, the base was unfavourable with jewellery segment revenue increasing by an impressive 54% in the June 2017 quarter. The quarter had included advancement of sales (worth 250 crore) in anticipation of a high goods and services tax rate.

Coming back to Q1 FY19, what also hurt Titan’s growth was that consumer sentiment remained weak in the month of June. Higher gold prices may have discouraged some consumers from purchases and there were fewer wedding days than usual.

According to the management, industry revenue declined 10-25% year-on-year and Titan gained market share in line with expectations, even as reported growth was 10 percentage points below internal expectations, pointed out analysts from Kotak Institutional Equities in a report on 3 August.

The company’s earnings presentation says gold grammage declined 3% during the June quarter from a year earlier. That was the poorest performance seen in the last seven quarters.

It helped that Titan’s watch business compensated a bit, with Ebit (earnings before interest and tax) more than doubling (up 128%) to 111.32 crore. Watch segment revenue grew by 15%. Ebit margin at 18.8% was the highest in the past 13 quarters at least, helped by a better product mix and cost-control measures. However, sustainability of these margins will be a factor to watch out for. Also, the watch business doesn’t move the needle meaningfully for Titan given its much smaller share of revenue (13.6% of total for the June quarter). Jewellery segment revenue accounted for 82% of the total last quarter.

Overall, Titan’s stand-alone revenue and net profit increased 8% and 31% to 4,319 crore and 349 crore, respectively.

What of the stock?

Titan’s shares have underperformed the Sensex so far this fiscal year. But investors haven’t really lost out. In the past one year, the stock has appreciated as much as 57% from its annual closing low seen on 28 September. Not surprisingly, valuations are steep. Currently, the stock trades at 55 times estimated earnings, based on Bloomberg data. For valuations to sustain at these levels, the jewellery segment performance has to recover on a consistent basis.

Investors should also keep a tab on any sharp spike in gold prices. In any case, Titan’s valuations suggest most of the good news is baked into the price.

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