Titan Company: Recovery in jewellery biz restricts hit to Q2 performance

Revenue growth, however, could stabilise once recovery picks up

Led by significant recovery in its jewellery division, Titan Company was able to restrict the hit to revenues and operating performance in the September quarter (Q2). 

After a 74 per cent year-on-year decline in Q1, sales declined 11 per cent in core operations in Q2 aided by the unlocking of the country, higher walk-ins, and conversions. The fall in overall revenue fall was restricted to 2 per cent, largely because of the higher bullion (coin) sales. 

Customers’ preference for raw gold (gold coins), perceived as a store of value thanks to rising gold prices, led to a six-fold increase in coin sales to Rs 391 crore compared with a year ago. Coin sales now account for 14 per cent of jewellery sales, as against 3 per cent in the year-ago quarter. And though this helped the company offload its inventory and optimise working capital, coins fetch lower margins.

The other segment within the jewellery division (88 per cent of consolidated revenues) that weighed on margins was studded jewellery. Though share of studded jewellery rose from 18 per cent in Q1 to 26 per cent in Q2, it was still much lower than 38 per cent a year ago. While the company expects improved demand in the second half of the financial year from the wedding segment, analysts say sales of studded jewellery will remain sluggish for a couple of quarters because of lower discretionary spending. 

The margin in the jewellery segment was down 260 basis points over the year-ago quarter to 8.3 per cent. 

Margin pressures are expected to continue on weaker volumes and adverse mix of higher coin sales and lower studded jewellery business. 

What could add to the profitability pressure is an increase in advertising spends in the next few quarters. Promotional spends were down 59 per cent in Q2. 

While the Rs 34 crore provision made for overdue margin money from a broker impacted segment margins, the company highlighted that it has set up a trading outfit to manage this risk. On the hedging front, the company has recognised a Rs 484 crore loss due to ineffective hedges but indicated that quarterly volatility on this account will come down. 

Though the 90 per cent plus recovery in jewellery (adjusted for the Q2 base), market share gains from the unorganised segment, and expansion are positives, there could be revenue and margin pressure on account of slow recovery in larger cities, which are key markets for Titan.