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Home / Markets / Mark To Market /  Titan is glittering less in jewellery
business


TITAN IS GLITTERING LESS IN JEWELLERY BUSINESS

Premium Titan’s shares are 85% above pre-covid highs seen in Feb 2020, rendering
valuations pricey (Photo: MInt) 2 min read . Updated: 08 Apr 2022, 01:48 AM IST
Pallavi Pengonda, Vineetha Sampath

 * In Q4, recurring jewellery business disappointed owing to Omicron’s impact,
   volatile gold prices
 * However, with gold prices settling, jewellery demand can be expected to see a
   pick up



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MUMBAI/BENGALURU : Titan Co. Ltd’s shares fell 3% on Thursday on the National
Stock Exchange (NSE). This is after the company’s pre-quarter update for the
three months ended 31 March (Q4FY22) disappointed. However, valuations are
pricey. The stock trades at 61 times estimated FY24 earnings, according to
Bloomberg data.



As such, expectations are lofty and the latest update falls short. For Q4,
jewellery revenues, excluding bullion sale, dropped 4% year-on-year (y-o-y).
Jewellery contributes more than four-fifths of Titan’s revenues. Note that
Q4FY21 benefitted from a large B2B order, which contributed 10% to growth that
time. Adjusting for this, recurring jewellery revenues would be flat y-o-y in
Q4FY22.

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Glittering less
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This (flat performance) comes against Kotak Institutional Equities’ and the
street’s expectation of 15-16% growth. “It implies deceleration in three-year
CAGR (compound annual growth rate) to 15% in Q4 from 22% in Q3," said Kotak’s
analysts in a report on 7 April.

As such, FY22’s fourth quarter was not an easy one. First, there were
disruptions because of the curbs on account of the Omicron coronavirus variant
in January. February did see a strong rebound in sales, but that was followed by
a dull March as gold prices remained volatile and high. Plus, geopolitical
tensions added uncertainty, affecting consumer sentiment. Sales from the top
eight cities grew in single digits whereas the rest of India saw a small drop.
Overall, studded jewellery sales fared better.

It is likely that investors will view the dull Q4 show as a temporary blip.
Consumers tend to defer purchases when gold prices are rising and volatile and
typically wait for stability in prices. “For instance, gold price increased by
14% quarter-on-quarter in the September 19 quarter, resulting in a 2% y-o-y
decline in Titan’s jewellery sales. As prices settled, jewellery sales growth
bounced back to 15% in the 19 December quarter. Given this, we do expect
recovery in demand in Q1FY23," said Kotak’s analysts.Also, auspicious occasions
such as Akshaya Tritiya augur well for demand in the current quarter.

Meanwhile, Titan’s watches segment clocked 12% y-o-y revenue growth in Q4.
Eyecare revenue growth was 5%. However, these segments are too small to move the
needle for the company.

After Thursday’s decline, Titan’s shares are now 11% lower vis-à-vis the 52-week
high of ₹2,768 per share seen on 21 March. Even so, the stock is as much as 85%
above pre-covid highs seen in February 2020. This is despite sporadic
restrictions since early 2020 to curb coronavirus infections. “Titan was able to
recoup the sales it lost on account of covid disruptions over the past two years
in the subsequent quarters because of strong pent-up demand," said Krishnan
Sambamoorthy, analyst at Motilal Oswal Financial Services. In Q3FY22, jewellery
revenues were almost 60% higher than Q3FY20 (pre-pandemic quarter). “Post
pandemic, the firm has seen tailwinds in terms of market share gains. Also, with
curbs on the number of people allowed at weddings during times of restrictions,
consumers are said to have used some of the funds allocated for catering and
other services for jewellery purchases. Of course, as normalcy resumes, some of
these gains may reverse," Sambamoorthy said.

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Even so, there is optimism on Titan’s long-term prospects. This should support
the stock’s premium valuations. “Titan stock is unlikely to react too negatively
unless there is a sustained downgrade in operating metrics. It is among the most
expensive consumer stocks in the country. In general, when investors foresee
better growth potential, there have been fewer episodes of sharp valuation
correction for consumer companies," said Varun Singh, analyst at IDBI Capital
Markets & Securities Ltd.

 


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