Bangalore/Mumbai Shares of Titan Company Limited are down 5% so far this calendar year and are down nearly 14% from their 52-week high. On March 21, 2,768 were seen on the National Stock Exchange. The valuation of the stock is high. Based on data from Bloomberg, the stock is currently trading at around 70 times estimated earnings for fiscal year 2023.
Investors looking for some trigger from the company’s fourth quarter (Q4FY22) may be in for some disappointment. To recall, Titan had indicated a revenue trend in its update last month and it was lower than expected. As such, margin performance was a key factor in the fourth quarter results announced on Tuesday, a stock market holiday.
see full image
The company’s standalone earnings before interest, taxes, depreciation and amortization (Ebitda) declined 1.6% year-on-year. 782 crores. Staff costs, advertising costs and other expenses increased sharply by 31%, 97% and 27%, respectively. There are also one-off items. Company announces payment of ex-gratia amount 72 crores to reward its employees during the quarter and this is included in employee cost. Overall, Titan’s EBITDA margin contracted 39 basis points (bps) year-over-year (y-o-y) and 396 bps, sequentially. One basis point is 0.01%. Ebitda’s performance is below analysts’ expectations.
The company’s core jewelery business posted a decline of 200 bps in earnings before interest and tax (Ebit) margin, down 12.7% sequentially. This does not include the sale of bullion. According to Titan, excluding one-offs, the jewelery ebit margin stood at 13.1%.
Q4 was a challenging quarter because of the impact of the Omicron version of the coronavirus, volatility in the price of gold and a delicate geopolitical situation. Jewelery revenue remained flat year-on-year after adjusting for large B2B orders in the base quarter. Consumers deferred purchases due to volatility in gold prices. According to the investor presentation, the wedding category saw a decline of around 9% in revenue. Studded jewelery revenue grew 7% annually and its proportion in the overall mix improved by nearly 400 bps. However, the plain jewelery segment declined 4% year-on-year.
“Gold prices have declined in the past one week,” Titan’s management said in a post-earnings call. The company is optimistic about the wedding season this time. It also indicated that the performance in April has been encouraging.
Titan’s watch segment was a drag. While watch revenue grew 12%, growth in the quarter was driven entirely by value, with volumes remaining flat. Revenue from the iCare business grew 5.5%. However, the contribution from these segments is small.
Titan also launched a voluntary retirement plan for its long-serving employees in the fourth quarter. This. Extraordinary lump sum cost of 51 crore related to the employees who opted for the scheme. This weighed in on the reported net profit, which was 491 crore, a decline of 7% from the year-ago period.
Still, Titan has performed reasonably well. Analysts at ICICI Direct Research said in a note, “Despite various constraints, Titan posted strong (consolidated) revenue growth of 36% year-on-year in FY22 and is the fastest-growing discretionary companies (two-year CAGR: 15). %) remains one.” The strong performance in challenging times reaffirms our thesis of long-term market share gains for Titan,” he said.
The stock’s valued valuation shows that investors are capturing a fair share of the positives. Investors will keep an eye on a steady pick-up in demand, which should reflect in volume.