After Sep quarter recovery, demand uptick key for Titan
While jewellery biz revival is satisfying, it’s crucial that the momentum further improves in festive season
Titan Co. Ltd’s improvement in revenue performance on a sequential basis is encouraging. For the September quarter, jewellery segment revenues declined by 2.3% year-on-year. This excludes sale of bullion worth ₹391 crore in the last quarter. For perspective: jewellery revenues adjusting for bullion sale had fallen as much as 70.8% during the June quarter.
True, a favourable base did aid Q2 performance. Even so, the recovery in the studded segment is slower. “The recovery in studded segment is lower compared to plain segment, leading to studded ratio at only 26% compared to 38% in previous year and with coin sale share was at 14% in Q2FY21 compared to 3% in Q2FY20, impacting the gross margin negatively,” said Titan in its earnings presentation. Studded ratio refers to the ratio of studded gold jewellery to overall jewellery.
The company also made a provision of ₹34 crore towards receivables from one of the brokers, which impacted the segment’s earnings before interest and tax (Ebit) margin. As per Titan, reported jewellery Ebit margin in Q2 dropped to 8.3% from 10.9% last year.
Jewellery remains Titan’s mainstay, contributing 83% to FY20 revenue, while watches accounted for 13%. Watch performance saw a rebound as well, with revenue decline contained to 44% in Q2 from as high as 90% in Q1. Recovery in September was higher at about 70% on a year-on-year basis. However, the segment posted a small Ebit loss of ₹4 crore.
Overall, Titan reported a decline in both operating revenues and net profit, by 11% and 38%, to ₹3,892 crore and ₹199 crore, respectively.
Going ahead, while the recovery in Titan’s jewellery business is satisfying, it’s crucial that the momentum further improves in the festival season. “In terms of the festive sales in Q3, the first 11 days saw a high single-digit sales growth on a like-to-like basis with last year’s festive season. That’s reasonably ok. But we need to see now the real festive season is still there and how consumers respond to higher gold prices,” said Abneesh Roy, executive vice-president, research, Edelweiss Securities Ltd.
Shares of Titan are still about 8.5% away from their pre-covid highs seen in February. Valuations though aren’t cheap. The stock trades at 57 times estimated earnings for FY22, based on Bloomberg data.
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