Some of the glitter of gold seems to be rubbing off on Titan Co. Ltd. Its shares touched a new 52-week high on Monday, even as the price of the yellow metal rose.

However, as has often been seen, consumers tend to delay purchases when gold prices spike and adopt a wait and watch policy. That means in the near term there could be some pressure on volumes. In India, much also depends on the festive and wedding season demand when jewellery sales tend to be robust.

Nonetheless, a consistent improvement in gold prices augurs well for Titan, as it improves profit margin, said analysts requesting anonymity. Of course, whether the net impact of higher prices on volumes and margins is positive or not will only be known when the company announces its quarterly results. What also remains to be seen is whether the current strength in gold prices persists.

The jewellery business is the mainstay for Titan, accounting for about 83% of FY19 revenues. Jewellery Ebit (earnings before interest and tax) margin stood at 12.2% for FY19.

Titan has performed well relatively at a time when consumer companies are feeling the pinch of a consumption slowdown.

The recently concluded March quarter’s revenues had risen by nearly 20% from a year ago. This includes revenues from watches, eyewear and others. In its March quarter earnings presentation, Titan said it will target around 20% growth for FY20 despite the muted outlook for the economy.

“The company’s execution remains strong, as demonstrated by the continued success of its new jewellery collections," said a Deutsche Bank Research report on 13 May. “We believe that a combination of macro tailwinds and micro-initiatives (such as new collections, its focus on wedding jewellery and value deals) is resulting in increasing consumer acceptance."

The company has remained a beneficiary of market share gains from the unorganized sector. “Plus, if you want to play gold, people seem to trust the Titan brand more," said an analyst, who also declined to be named.

To be sure, investors are ascribing the requisite brownie points to Titan. In the past year, the stock has risen by 47%. This means it now trades at nearly 63 times estimated earnings for FY20 based on Bloomberg’s consensus estimates. That’s not cheap. But there’s little evidence to say that valuations won’t sustain at these levels if Titan continues to deliver steady growth.

Deutsche Bank’s analysts say they are modelling for compound annual earnings growth of 28% between FY19 and FY22, which is the highest among Indian consumer companies.

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