Titan Co. Ltd’s shares had run up over 50% since the beginning of this fiscal year in anticipation of jewellery demand trickling in as gold prices softened. So it was not surprising that the stock fell around 9% after the management said in an analyst’s conference call after announcing its September quarter earnings that festival season demand was sluggish and the absence of gold deposit schemes could lead to tepid growth in the near term.

Emkay Global Financial Services Ltd in a research note dated 30 October said lukewarm demand during the festive season along with closure of their flagship gold purchase scheme (in line with new regulations) will impact growth in the second half of the current fiscal year, despite a low base last year. Emkay Research has cut earnings growth estimates by 30 basis points (bps) to 9.4% for 2014-15. One basis point is one-hundredth of a percentage point.

The jewellery segment, which contributes over three-fourths of revenue, jumped 65% to 2,929 crore compared with a year ago due to pent-up demand on winding up of its Golden Harvest scheme—a savings scheme where consumers deposited a fixed amount every month and bought gold worth the deposited amount at the end of 12 months. In the absence of such a scheme, growth in the jewellery segment would have been 20%, according to the management. Higher discounts and payout for the gold savings scheme hurt Ebit (earnings before interest and taxes) margins, which declined 323 bps year-on-year in the September quarter.

Sales for the watches division, which makes up around a sixth of sales, doubled to 527 crore, helped by promotional events, new launches and sale of higher priced watches. This helped in Ebit margin expansion of 280 bps compared with a year ago.

Overall net sales grew 56% to 3,565 crore. While gold prices have lingered at lower levels, raw material costs as a percentage of net sales rose 6.8 percentage points.

The company has been rationalizing costs by cutting down on advertising and employee expenses. The stock is trading at 31 times one year forward price to earnings multiple.

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