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Titan Co. Ltd’s shares rose more than 3% in early trade on Friday on the NSE, hitting a new 52-week high. Even as most of the gains were wiped out later, the jewellery retailer’s December quarter (Q3FY22) update brings cheer, setting the tone for robust financial results.

The company saw strong growth momentum continue in Q3 with revenues rising by 36% year-on-year. Titan’s mainstay jewellery business, which accounted for more than 85% of revenues for the half-year ending September, continues to shine. The segment’s revenues, excluding bullion sales, increased by 37% year-on-year. 

According to Titan, this time around, jewellery demand was robust led by festive season sales in October and November. Further, the proportion of studded jewellery in the overall pie has slightly improved year-on-year. For perspective: this measure stood at 26% in Q3FY21.

The company’s watch business revenues increased by 28%, helped partially by a softer base. In Q3FY21, watch revenues had declined by 12%. The company said multi brand channels, both online and offline, saw handsome growth last quarter.

Overall, the strong revenue trends are likely to aid margin improvement. “The operating margin is likely to improve year-on-year in Q3FY22, led by a higher year-on-year contribution from the studded jewellery business. The strong topline growth would also drive Ebitda growth," said analysts from Motilal Oswal Financial Services.

As things stand, many analysts are upbeat on growth prospects. Nonetheless, restrictions owing to the fresh surge in covid-19 cases are worth tracking. “Going ahead, we expect the jewellery division to continue to register strong performance, with stability in gold prices. However, the threat of new lockdowns given the rise in covid-19 cases remains to be a key monitorable," said analysts from Dolat Capital Market Pvt. Ltd in a note.

Needless to say, investors will have to closely follow management commentary on demand trends when the December quarter results are announced. Note that the Titan stock has appreciated as much as 65% over the past year, rendering valuations pricier. Based on Motilal Oswal’s estimates, Titan’s shares now trade at 80 times estimated earnings for financial year 2023. The stock’s stellar returns and expensive valuations may well limit significant upsides in the near future.

 

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