Titan stock glitters on festive revival, but sustaining the momentum is key2 min read . Updated: 22 Nov 2020, 07:49 PM IST
The company has also said that the recovery in studded jewellery sales during the festive season was decent
In these times as companies heal from the covid-19 lockdown and move towards normalcy, better-than-expected recovery is exciting for investors. Titan Co. Ltd said its jewellery business witnessed a mid-teens year-on-year growth (around 15%) for the 30-day festive season from Dussehra till Diwali. Investors approved. The stock closed 5.6% higher on Friday, touching a new 52-week high during trading hours.
Jay Gandhi, analyst at HDFC Securities Institutional Research, said, “No doubt, Titan’s execution has been remarkable. The festive season growth of 15% is relatively better than expectations, driven to a good extent by higher gold prices." In its September quarter earnings call, Titan’s management had said growth was single-digit for the initial about 10 days of the festive period. Small wonder the company’s latest update has cheered investors. For perspective, during the September quarter, Titan’s jewellery revenues had declined by 2.3%, excluding revenue from gold bullion sales. Reported jewellery revenues had increased by about 9%.
The company has also said that recovery in studded jewellery sales during the festive season was decent. Analysts feel this should help margin performance. After all, lower studded jewellery share was one of the reasons that hurt margins during the September quarter.
Titan says its other businesses such as watches and eyewear have also seen good traction. But jewellery is Titan’s mainstay, accounting for as much as 83% of FY20 revenue.
In general, on the course to normalcy from the covid-19 pain, Titan is expected to benefit from the pent-up demand sales and bunching up of weddings. Plus, the news flow around emerging vaccines is encouraging. But valuations are expensive, more so after the recent jump in the share price. Titan shares trade at 64 times estimated earnings for financial year 2022, based on Bloomberg data.
“Titan stock’s valuations were pricey even earlier," said an analyst with a domestic brokerage firm, requesting anonymity. “For investors, the business momentum is critical now and as long as Titan doesn’t negatively surprise in a big way on this front, high valuations should sustain," he added.
Not all is hunky-dory though. “Relatively, Titan’s market share gains within the big-box jewellery space is likely to hit a pause momentarily given that most big-box jewellery firms are sitting on significant gross margin gains," said Gandhi. The concern here is that these other jewellers may use lower-cost inventory to remain more competitive in the next couple of quarters.
Hereon, a slower-than-expected recovery is the biggest risk for Titan’s investors. Further, unfavourable movements in gold prices may hurt also demand.