Titan Company’s September quarter could pave the way for improvement in earnings

No wonder, shares of Titan were up 5.3% on Friday, when the benchmark Nifty 50 index was marginally down. Despite the high base, investors were upbeat about the second quarter growth in the jewelery business. Recall that jewelery revenue grew 77% in the September quarter last year, benefiting from some suppressed demand and spillover purchases in the Covid-hit Q1FY22.

As such, the three-year compound annual growth rate in Q2FY23 is 27%. All eyes will now be on Titan’s second quarter margins. Here, one factor that will play in favor of the company is the sharp increase in studded sales versus gold jewellery. The rising stake of the former will support margins. In Q1, studded jewelery accounted for 26%. Kotak estimates the stake to be 34% in the second quarter. While the product mix is ​​improving, it is still below pre-Covid levels. In Q2FY20, studded jewelery accounted for 38%. Meanwhile, Titan’s watch business grew 20% year-over-year, while the eye care business saw 7% growth. For the overall standalone business, the company added 91 stores in the quarter, taking the total number to 2,251. Titan shares are hovering near their 52-week high 2,768 were seen in March. Any fall in demand for jewelery on the back of a rise in gold prices could dampen investor expectations. This could lead to a fall in Titan’s high valuation multiples. Bloomberg data shows the company’s shares are now trading at around 64 times estimated earnings for FY24. “Valuations are expensive, but the same is the case for some other quality consumer discretionary companies,” said one analyst who spoke on condition of anonymity. Still, costly valuations can limit significant near-term upside.