Titan Company slips on weak business update

Titan Company fell 2.44% to Rs 871.35 after the company said that the nationwide lockdown due to COVID-19 pandemic posed challenges to all its businesses.

Titan Company said its operations were hit substantially from 17 March 2020 till the 1st week of May 2020, when lockdown was gradually lifted. The company reported marginal sales through its online channel at the end of April but delivery for these were affected due to classification of its products as non-essential so far.

In last 2 months, the company's operating cash flow was negative due to virtually zero sales during the first six weeks of lockdown, increase in mark-to-market cash outflow on gold hedge due to rising gold prices and committed costs being incurred. However, these mark-to-market cash outflow is expected to be recovered when sale of jewellery commences. Thus, the COVID-19 situation is expected to adversely affect the profitability during the first half of this year.

Sales during 'Akshaya Tritiya', which fell on 26th April, were impacted except for some online sales. The wedding season is also normally strong during April and May and this year almost all weddings in this period have been postponed. The jewellery business of the company has deferred the launch of two of its collections till a time that most of the stores are re-opened.

The company has opened around 43% of its stores across all businesses till date. The company is predominantly dependent on retail operations through nearly 1850 retail outlets in the country. The share of online business is around 2% of its sales. The sales in stores that have opened up are at around 50% of the sales in a normal period and is improving gradually.

Manufacturing activities have commenced gradually in most of the facilities. In the short term, manufacturing activity will be below normal.

Customer sentiment pointing to reduced spends on discretionary items might impact demand for most of the company's products. The drop in sales is also expected to impact store profitability in the near term and hence store roll outs will be calibrated in the immediate future till more clarity emerges.

The company is in a comfortable liquidity position due to adequate banking limits being in place and ability to issue Commercial Papers as the company continues to enjoy the highest rating in both short term (A1+) and long term (AAA) borrowings by CRISIL and Brickworks. The company has successfully issued Rs 1,000 crore of commercial papers during April and May at extremely attractive rates to meet the funding requirements. There is also no impact on internal financial controls due to the COVID-19 situation.

There is minimum disruption in the supply chain as most of the vendors have re-started their production and are ready to provide required supplies. Supplies from international vendors for watch business, eyewear business and for accessories have commenced. Production and will commence depending on the demand and the inventory being liquidated.

The retail operations of CaratLane Trading were impacted adversely. However, its online sales will help in the cash flows and profitability of Caratlane.

Titan Company said it will publish its annual audited accounts in mid-June. Titan Company is engaged in offering watches, jewellery and others.

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