Titan Co. Ltd’s shares are hovering around their 52-week highs. The jewellery segment has been comparatively resilient, aiding the sentiment for the stock. The company’s latest pre-quarterly numbers show that it has managed to beat the general sluggishness in discretionary demand to a good extent.
Titan’s mainstay jewellery business revenue (excluding bullion sales) clocked 19% year-on-year revenue growth in the September quarter (Q2FY24), according to the company’s provisional business update. This compares with 19% growth seen in the June quarter and 24% in the March quarter. In short, Titan’s delivery has been consistent in the jewellery business, which formed over 85% of overall revenues in FY23.
Last quarter, the company saw double-digit growth in buyers and ticket sizes. Further, Q2 jewellery growth got a fillip on the back of activation (promotions) for studded jewellery, new collection launches, robust Golden Harvest scheme sales, a healthy wedding season and high-value studded jewellery purchases. Meanwhile, growth in the comparatively smaller watch business was faster at 32%. Thus, Titan expects overall standalone revenue growth of 20% year-on-year in Q2FY24.
Importantly, everyone wants to know whether the growth momentum in the jewellery business would sustain. In the near term, the upcoming festival/wedding season and easing gold prices could boost sales in the December quarter. But a further weakening of the macro-economic environment (read: stubborn inflation) could hurt demand for gold jewellery. “We feel the current revenue growth rate in Titan’s jewellery business is unlikely to sustain beyond Q3FY24,” said Jay Gandhi, analyst at HDFC Securities.
To be sure, rising competitive intensity could be one party pooper. In Q2, smaller rival Kalyan Jewellers Ltd saw 32% year-on-year growth in domestic jewellery sales, helped by faster retail expansion. ICICI Securities Ltd expects Kalyan to exceed its FY24 store expansion guidance and potentially outperform Titan on revenue growth in FY24. The brokerage notes that in the last 12 months, Kalyan (41 stores) has opened more stores than Tanishq (40 stores) in India.
Indeed, Titan is making constant efforts to drive growth. In a bid to sustain growth momentum, the company is investing in exchange programmes and consumer offers. But on the flip side, this could mean pressure on margins. Remember, in Q1, amid elevated gold rates, Titan’s jewellery margin took a hit as it had to dial up its gold exchange programme to offset the uncertainty in consumer demand. Thus, when Q2 results are announced, investors will keenly follow the margin trajectory. In this backdrop, management commentary on FY24 jewellery earnings before interest and tax margin guidance of 12-13% is important.
In Q2, Tanishq expanded its presence in the Gulf region by entering Qatar and adding two new boutiques in Doha. Of the 37 new store (net) additions in India last quarter, 10 stores were in Tanishq, 26 stores in Mia by Tanishq and 1 store in Zoya, respectively.
For Titan’s investors, there is little to complain about. So far in 2023, the stock has rallied by nearly 26%, beating benchmark Nifty50 by a wide margin. The problem with the Titan stock for a while now is that valuations are pricey. The stock trades at 62 times estimated earnings for FY25, showed Bloomberg data. “If we look at Titan’s FY25 PE multiple, then it shows that the market is extrapolating growth rate trends seen in jewellery division,” said Gandhi. “Also, competition is elevated from unorganized jewellers, especially on making charges. This means that while Titan may see revenue growth, operating margin may be lacklustre going ahead,” he added.
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Updated: 09 Oct 2023, 10:14 PM IST