Titan now expects revenue from its jewellery biz for H2 fiscal 2020 to increase 11-13% y-o-y from about 20% earlier
For the September quarter, jewellery business accounted for 79% of the company’s standalone revenues, down 1.5% y-o-y
Before Titan Co. Ltd announced its September quarter earnings, the stock was trading at nearly 65 times its estimated earnings for this fiscal year. This is based on Tuesday’s closing price on the NSE. No doubt, valuations were pricey and expectations were high. But Titan’s September quarter results, announced after market hours on Tuesday, have disappointed investors.
More importantly, Titan has tapered future expectations. It now expects revenue from its jewellery business for the second half of fiscal year 2020 (H2 FY20) to increase 11-13% year-on-year from about 20% earlier.
Titan shares shed a tenth of their value on Wednesday. The big question now for investors would be whether Titan is able to achieve its new lowered guidance. “There are risks to meeting this lowered 11-13% growth guidance for H2 FY20," wrote analysts from Credit Suisse Securities (India) Pvt. Ltd in a report on 5 November. “December quarter will be very challenging as: (1) the festive season was early this year and some primary sales to franchisees would have been pushed to Q2 in FY20 and (2) there is a ₹200 crore institutional order in the Q3 FY20 base," pointed out the Credit Suisse report.
Titan derives a large chunk of its revenue from the jewellery business, which contributed as much as 79% of stand-alone revenue for the September quarter. Jewellery revenue declined 1.5% on a year-on-year basis. “After a sudden surge in gold prices in mid-June, there was a considerable decline in sales in July. Higher level of promotion and schemes led to strong growth in the months of August and September," said the earnings presentation.
What next? With consumer sentiment subdued across the country, a near-term weakness in demand cannot be ruled out for Titan. Profit margin outlook isn’t bright either. “Though promotions have been reduced as per management, higher margin comparables in H2 FY19 (due to inventory gains and lower ad spends) and a weak consumer spending are unlikely to drive margin upsides," highlight analysts from Emkay Global Financial Services Ltd in a report on 5 November. “Slower-than-expected pick up in consumer spending can drive further downsides to our FY21-22 estimates," added the brokerage firm.
Given these challenging business conditions, it won’t be surprising if the Titan stock takes a while to start shining again. After Wednesday’s share price fall, the stock now trades at about 58 times estimated earnings for FY20, based on Bloomberg data.