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Titan Co. Ltd’s September quarter results (Q2FY23) have many bright spots. Standalone earnings before interest and tax (Ebit) margin of Titan’s mainstay jewellery business was 15.3% last quarter, clocking about 180 basis points (bps) increase, sequentially. One basis point is 0.01%.

In the post earnings call, the company’s management said there is about 2% margin gain that is represented by certain items, which are not sustainable. The jewellery margin in Q2 benefited from customs duty related gains and diamond pricing. Titan maintains its margin guidance of 12-13% for the jewellery business, which is not as exciting.

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Excluding bullion sales, jewellery revenues increased by 18% year-on-year (y-o-y) to 7,203 crore in Q2. Growth in the India business was about 15% and in the international business about 400% on a low base. Total buyers rose by about 10% y-o-y.

Growth in studded jewellery was stronger at 25%, led by activations and contribution from high-value purchases. The share of studded jewellery inched up to 32% from 30% in Q2FY22, but was lower than the 37% seen in Q2FY20, before covid. Q2FY20 was a slightly abnormal quarter with a higher studded share, the Titan management said.

In case of watches and wearables, healthy growth across key brands and channels led to 21% revenue growth and 14.8% Ebit margin. Overall, Titan’s standalone reported net profit rose by almost 34% y-o-y to 857 crore.

Titan is set for a strong FY23, but the high base may pose a challenge for growth in FY24. The ongoing December quarter has a high base as Q3FY22 was strong. Titan has seen 17-19% growth across segments in this year’s festive season. However, the management remains cautious on how the next two months will play out.

Broadly, analysts are upbeat on Titan’s prospects. “Titan has a strong runway for growth, considering its market share of sub-10% in jewellery and the continuous struggles faced by unorganized and organized peers," said a report by Motilal Oswal Financial Services Ltd dated 4 November.

Meanwhile, Q2 results have encouraged some analysts to raise earnings estimates, though valuations are steep.

Titan’s shares are flirting with their 52-week highs. They trade at 64 times estimated earnings for FY24, showed Bloomberg data. “The stock’s near-term multiples appear expensive, but its long runway for profitable growth warrants premium multiples," said the Motilal Oswal report. Even so, this may keep large upsides at bay in the near future.

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ABOUT THE AUTHOR

Pallavi Pengonda

Pallavi Pengonda is a financial journalist producing cutting edge commentary and analysis on companies, economy and market trends. Over her journalism career spanning more than 14 years, she has covered topics across sectors such as oil & gas, consumer, aviation and new age tech companies. She heads the Mark to Market team and joined Mint in June 2010. She lives in Bengaluru. She is an art enthusiast and likes to paint in her leisure time.
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