The Titan Co. Ltd stock on Monday was the biggest gainer among the Nifty 50 index stocks. Titan’s shares rose 1.7%, even as the benchmark index declined by 1.9%, with 46 stocks in the index falling.

The company’s update to investors for the December quarter hasn’t thrown up any negative surprises. It said the jewellery division, which contributes 80% to revenue, met its revised expectations for the quarter and posted 11% year-on-year revenue growth. Evidently, the demand for jewellery has been steady even in the midst of a slowdown.

Graphic by Satish Kumar/Mint
Graphic by Satish Kumar/Mint

Given the consumption slowdown in various pockets of the economy, Titan’s commentary is encouraging. Recall that after the September quarter results, the company had said it expected jewellery revenue for the second half of fiscal year 2020 to increase 11-13% from about 20% a year earlier.

When the December quarter results are announced, management commentary on demand trends, considering the recent spike in gold prices, will be watched closely. Typically, the price-conscious Indian consumer tends to postpone jewellery purchases when the price of gold increases sharply.

Investors will also track sales volume numbers closely. “Considering poor consumer sentiment, we believe that gold price increase of 24% year-on-year in Q3 resulted in some decline in grammage sales growth," said analysts at Dolat Capital Market Pvt. Ltd in a note to clients. The company’s gold jewellery grammage had declined by 14% during the September quarter and jewellery revenues had decreased by 1.5%.

Meanwhile, the watch business has put up a weak December quarter show with flattish year-on-year revenue. The eyewear segment, too, slowed, reporting revenue growth of just 2%, after two strong quarters.

Titan’s shares closed higher on Monday, but the stock has lost almost 17% from its 52-week high of 1,389.95 on 25 October. With valuations at almost 50 times estimated earnings for FY21, based on Bloomberg data, the stock is not cheap.

Moreover, with gold prices remaining high and the general consumer sentiment remaining weak, jewellery demand could take a knock. Still, the high valuations may sustain.

“We continue to believe that the long-term fundamentals are intact and, in the absence of higher investment opportunities in the sector, Titan will continue to command high valuations," said the Dolat Capital’s analysts.

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