Titan: jewellery glitters in the face of demonetisation
Titan Co. Ltd’s jewellery revenue for the December quarter was expected to be rather lacklustre given the demonetisation impact. Clearly, 15.4% revenue growth in jewellery business, which contributed a lion’s share of the company’s overall revenue, is nothing to complain about. That’s despite the adverse impact post-demonetisation. Moreover, the December 2015 quarter had a high base due to presence during the year-ago period of the studded jewellery activation. Gold jewellery volume growth for the December 2016 quarter was 4%.
Importantly, Titan maintains, market share gain is evident as its growth contrasts sharply with the decline reported by industry. New collection launches, well-timed consumer schemes and a more attractive exchange programme helped the jewellery business revenue growth performance during the festival quarter. However, on the flip side, increase in coin sales, compounded by a low studded jewellery ratio reduced the gross margin rate for the jewellery division compared to last year’s quarter, highlights the company. Coin sales increased 40% during the December quarter.
The watch business also performed well. Revenue increased 5% last quarter. That compares favourably with a revenue decline for watches of 5% in the September quarter. Volume growth for the segment was 4% last quarter, which was also the best growth clocked in the past nine quarters, according to Titan’s presentation. A good festival season helped the watch business performance. “Gross margin grew on account of better product mix for Titan and Fastrack,” says the company.
Titan’s eyewear and others segments too saw good revenue growth for the December quarter. However, their contribution is too small to move the needle in a big way for the company.
On an overall basis, Titan’s revenue (adjusted for excise duty) increased 13.6% year-on-year. But comparatively slower pace of operating costs growth meant that operating profit increased 21% to Rs373.5 crore. What really helped was the fact that advertising costs remained flat and other expenses declined 4.4%.
What of the stock? From a closing high of Rs437.35 in early September, the Titan stock dropped to a low of Rs303.04 last November. January is looking relatively good on the demand front, say analysts. But investors appear to be capturing a good portion of the positives. Since its low, the share price has appreciated 30%. One share currently trades at 36 times estimated earnings for the next fiscal year. Those are hardly cheap valuations.