Titan’s Dec quarter update takes stock to 52-week high
The stock appears to be building in a lot of optimism and any disappointment on earnings could be a reality check
After Titan Co. Ltd released its update for the December quarter, investors are visibly thrilled. The stock touched a new 52-week high in early deals on Wednesday on the NSE.
Titan’s commentary on the trends seen in the December quarter are encouraging. The company has said jewellery business recorded close to 15% year-on-year growth (excluding sale of raw gold worth about ₹334 crore) in Q3. Recall that Titan had announced that growth in the 30-day festive period between Dussehra and Diwali was 15%. Analysts are enthused that the festive season trends have sustained for the rest of the quarter.
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Sachin Bobade, an analyst with Dolat Capital Market Pvt. Ltd, said: “It is encouraging that the jewellery division’s double-digit growth has persisted even after the festive season."
Titan’s jewellery business is its mainstay, contributing 83% to its FY20 revenue. Note that in the June quarter, jewellery revenues had declined by a whopping 71%, as covid-19 restrictions weighed heavily on business conditions.
With restrictions gradually easing, the September quarter had seen a good recovery with the drop in jewellery revenues limited to just 2.3%. The December quarter saw even better improvement. Analysts expect jewellery business margins to be strong during the quarter, as better revenues drive operating leverage.
Additionally, recovery in Titan’s watch business is also notable. “The division had a recovery rate of around 88% in Q3, compared to the revenue of the same quarter last year," said Titan. Although, given the smaller contribution of the watch business in the overall scheme of things, the segment does not move the needle much for the company.
Of course, Titan stock’s valuations are not cheap. Based on Bloomberg data, the shares trade at almost 74 times estimated earnings for FY22.
“But momentum is key these days," said an analyst requesting anonymity. Bobade said: “Overall, I don’t think Titan’s valuations are reflecting any earnings upgrades as yet. Once that happens, valuations may taper a bit and appear comparatively cheaper from where they are currently." But even so, the stock appears to be building in a lot of optimism and, going ahead, any disappointments on earnings may well bring a reality check.
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