Titan Co. Ltd’s December quarter stand-alone net profit fell short of some analysts’ estimates. Net profit came in at 470 crore, against the 506 crore expected by a Bloomberg poll . Investors though were quite excited, taking the stock up 7.5% on the National Stock Exchange on Tuesday, a day when the Nifty 50 index rose by 2.3%.

What gives?

The market is appreciating companies that can deliver stable performance in these tough times, according to analysts. So, some stocks, such as Titan, are playing catch-up, considering a few consumer-related stocks had already run up on Monday, they added.

Graphic: Santosh Sharma/Mint
Graphic: Santosh Sharma/Mint

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Shares of Hindustan Unilever Ltd and Nestlé India Ltd touched new 52-week highs on Tuesday. Note, that despite the recent increase, the Titan stock is still 8% lower than its 52-week high seen on 25 October.

Coming back to Titan’s December quarter performance, a part of its earnings miss can be explained by the one-off provision impact of 25 crore, said another analyst, who declined to be named.

Revenue was broadly in line with Street estimates. The company saw 9.4% year-on-year growth in revenue to 6,206 crore. This was helped by strong growth in its mainstay jewellery business, which contributed 87% to total revenue last quarter. Jewellery retail growth was 15%.

“The industry itself witnessed reasonable growth in the festive season and the company did better and market share gains were evident," Titan said in its earnings presentation.

Overall, jewellery revenue reported an increase of 10.6%. Note that the December 2019 quarter had a large institutional order for gold coins worth of 200 crore.

This year’s December quarter saw gold grammage decline by 5%. Note that gold grammage had fallen by 14% during the September quarter.

Jewellery Ebit (earnings before interest and tax) margins declined by 30 basis points to 13%. This was largely due to an increase in advertising and higher management agents commission due to a change in the channel mix. A basis point is one-hundredth of a percentage point.

Titan’s watch business, which is the next big revenue contributor at 10%, put up a poor show with revenue declining by 2.4%. According to the company, the watch segment’s performance was affected due to poor customer sentiment specifically in December, which led to a sharp decline in primary sales and on e-commerce channels.

Going ahead, muted consumer sentiment makes the road challenging. Plus, it’s not as if Titan’s valuations are cheap. The stock currently trades at 55 times estimated earnings for FY21, based on Bloomberg data. Sure, the company remains one of the key beneficiaries of the shift to the organized market. For now, stock valuations suggest the optimism has been captured adequately.

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