From low prices to weak competition, how Titan hit gold during pandemic

India’s biggest gold jeweller is emerging stronger from the coronavirus pandemic. Shares of Titan Co. posted the best quarter in nearly three years as investors bet on a recovery in demand ahead of the key festive season and as an economic slump weakens its competitors.

The stock jumped nearly 27% in the quarter ending Sept. 30, the most since the three months ended December 2017. That compares with a 9% increase in the benchmark S&P BSE Sensex.

The rally comes as local gold prices head for a second consecutive monthly loss, capping gains of about 30% this year. The drop in prices, while still near record highs, comes ahead of India’s festival season that gathers pace from mid-October and peaks around Diwali, which falls in November this year.

Buying and gifting of gold is usually considered auspicious during this period by Hindus and with consumers in the world’s second-biggest buyer getting used to high prices, any correction is likely to lead to a rush to stores, ICICI Securities Ltd. said in a note last week.

“Gold itself being in a bull market has catapulted the stock,” said Sanjiv Bhasin, director at IIFL Securities Ltd. Additionally, “Indians’ spending by nature is very, very strong on gold” and the festival season should bode very well for a “pedigree stock” like Titan, he said.

Titan also stands to gain from the financial distress faced by smaller jewellers after the economy contracted 23.9% last quarter following one of the world’s strictest lockdowns. Regional unorganised jewellers are under pressure from liquidity constraints, funding issues and limited ability to sell online, providing bigger companies like Titan an opportunity to gain market share, ICICI Securities said.

India’s gold demand has been slammed this year by lockdowns imposed from March end to control the coronavirus outbreak. While the restrictions have been slowly eased over the last couple of months, jewellers are staring at record-low sales of the precious metal as the economy contracts sharply and prices remain near all-time highs.

“When gold prices go up, the inventory value goes up. So that is one factor,” which will help Titan as its margins will improve, said A.K. Prabhakar, head of research at IDBI Capital Market Services Ltd. “So even if there is a 10%-20% dip in revenue, their margins compensate in big numbers.”