Titan slips on dull Q1 update; competition clouds loom

In Q1FY25, same-store-sales-growth fell to low-single digit versus 15% in FY24 for Titan’s Tanishq, (Photo: Mint)
In Q1FY25, same-store-sales-growth fell to low-single digit versus 15% in FY24 for Titan’s Tanishq, (Photo: Mint)


  • Elevated gold prices hurt consumer demand during the Q1FY25 quarter, and when Q1FY25 results are announced, jewellery margins will be in focus.

Investors in Titan Co Ltd are going through a rough patch. The stock has now declined nearly 15% so far in 2024, after factoring in Monday’s 4% drop following the company’s disappointing June quarter (Q1FY25) business update. Its domestic jewellery operations saw only an 8% year-on-year revenue growth, falling short of expectations and paling in comparison to the 19% growth achieved in the previous quarter (Q4FY24).

Sure, smaller peer Kalyan Jewellers India Ltd's latest business update also revealed a slowdown in growth, yet the company clocked about 29% growth in its domestic operations in Q1FY25, which is nothing to sneeze at. While same-store-sales-growth continued to remain healthy in double-digits at about 12% for Kalyan, it decelerated to low-single digit (versus 15% in FY24) for Titan’s Tanishq, according to ICICI Securities’ analysts. They noted Kalyan's advantage in rapid retail expansion, which grew 36% year-on-year compared to Tanishq's more modest 13% rise through its capital-light, franchise-owned company-operated (FOCO) model. Tanishq is Titan’s flagship brand.

Read this: Can Titan retain its sparkle amid rising gold prices, competition?

According to Titan, during the June quarter, domestic growth came largely through an increase in average selling prices, while buyer growth was in the low single digits. The company said that elevated gold prices, up about 20% year-on-year, and their continued firmness have impacted consumer demand. This, along with a lower number of wedding days versus last year’s same quarter, curtailed growth this time around.

In the near term, when Q1FY25 results are announced, jewellery margins will be in focus. The jewellery business is Titan’s mainstay, accounting for 89% of FY24 total segment revenue. Investors would do well to lower their expectations from Titan’s margin performance, as increased competition is seen playing spoilsport in the near-to-medium term. Recently, the management has lowered jewellery Ebit (earnings before interest and tax) margin guidance to about 12%, from about 12.5% earlier.

As the jewellery sector becomes more organized, it remains to be seen  how well Titan is able to defend its market share amid rising competition. Last week, Kotak Institutional Equities downgraded their rating on Titan stock to ‘reduce’ from ‘add.’ “We cut FY2025-27 estimated earnings per share by 5-6% (now 10-12% below consensus) as we factor in external headwinds: (1) competitive intensity that is likely to exacerbate with the launch of Aditya Birla Group’s Novel Jewels and (2) direct/indirect impact of lab grown diamonds on Tanishq’s studded (jewellery) growth and profitability," said the Kotak report.

Also read: Titan had just 3 CEOs in 40 years. Who will be the fourth?

Against this backdrop, valuations don’t offer much comfort. Titan’s shares trade at 64 times FY25 estimated earnings per share, showed Bloomberg data. There may be scope for investors' sentiment to improve in the second half of FY25 if the wedding and festive season exceeds expectations, enhancing the company’s performance.

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