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Titan’s jewellery business dazzles in June quarter

LiveMint logoLiveMint 04-08-2017 Pallavi Pengonda

Titan Co. Ltd’s June quarter results will compel many analysts to upgrade their numbers. The jewellery business dazzled, boosting overall performance.

Jewellery revenue, accounting for as much as 83% of total stand-alone revenue, increased 54% for the June quarter compared to the same period last year. One factor that helped jewellery growth last quarter was that it had a very successful Akshaya Tritiya season, with 50% growth over the previous year’s Akshaya Tritiya period. Moreover, there was an element of advancement of sales on account of the goods and services tax (GST) introduction estimated at around Rs250 crore. To that extent, sales in the September quarter may get adversely affected.

Titan also explains that the jewellery business had a favourable base in the June quarter. “The strike by jewellery federations protesting against the imposition of excise had extended into first 15-20 days of April 2016 and though our stores were open during that period, sales were quite low,” it said in its presentation. Helped by a combination of above factors, Titan’s gold grammage growth came in at a strong 49%, the best performance in 11 quarters. While that’s impressive, it’s not sustainable.

The watch business, contributing almost 13% of total revenue, saw 2% growth in its revenue. There was rescheduling of the Titan and Fastrack activation (base quarter had activations). Titan maintains that the activations were postponed due to uncertainties around the GST rate and its impact on business. Export performance was poor.

Titan’s overall revenue increased 42% while operating profit margin declined 45 basis points to 9.9%. One basis point is one-hundredth of a percentage point.

Net profit more than doubled to Rs267 crore. Analysts say that as long as revenue growth is strong, the drop in margin is not too worrisome. The Titan stock increased about 1% on Thursday, a day when results were out and broader markets ended lower.

So far this year, investors are already sitting on slightly more than 20% appreciation. In comparison, the Nifty 50 index has gone up 9%. A lower than expected GST rate on gold jewellery helped keep the stock in favour. Currently, one Titan share trades at as much as 40 times estimated earnings for financial year 2019. Valuations suggest most of the good news is factored into the price. Even so, as long as the company continues to deliver on the financial performance, valuations are likely to sustain. Moreover, as one analyst who attended the company’s conference call says, “management commentary was upbeat on the jewellery business.” That should be comforting for investors.

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