Jewellery segment adds sheen to Titan's earnings

Due to a revival in consumer sentiment, the management remains positive on growth

While healthy revenue growth and margin expansion in the jewellery business aided Titan's growth in the December quarter, a subdued performance in the watch segment offset some of the gains. Net sales during the quarter stood at Rs 2,898 crore (up 9.4 per cent year-on-year), slightly ahead of the consensus Bloomberg estimate of Rs 2,810 crore. An uptick in the earnings before interest, tax, depreciation and amortisation margin, a lower tax rate and interest cost savings led to growth of 15.2 per cent in net profit to Rs 191 crore, in line with an estimate of Rs 192 crore. These positives partly offset a 56 per cent fall in other income at Rs 11 crore.

The management expects to benefit from improving consumer sentiment. This quarter, Titan plans to launch new products across segments and invest in advertising these launches.

During the quarter, Titan's jewellery segment posted healthy 11 per cent growth in revenue to Rs 2,347 crore. However, part of it was helped by a low base (in the year-ago period, sales had fallen 15.4 per cent). Growth in the December quarter was also impacted by a fall in gold prices (down six per cent) and the absence of gold harvest scheme (GHS)-related redemptions. The GHS was discontinued in the September 2014 quarter. Titan plans to re-launch the GHS after incorporating all the revised regulatory requirements. However, it will have to advertise this significantly, given the revised scheme could offer 12 per cent returns, against 17-18 per cent earlier. The company plans to focus on driving wedding and high-margin studded jewellery sales, which should support margins.

The watch segment was hit by weak discretionary spends. Also, huge sales by online portals effected footfall in Titan stores. Revenue from this segment fell 2.8 per cent to Rs 443 crore, the first decline since the September 2013 quarter. Margins stood at a 13-quarter low of 9.7 per cent. The company's earnings before interest and tax fell nine per cent to Rs 43 crore. While volumes fell four per cent, pricing restricted a fall in revenue from this segment. The eyewear and precision & engineering segments grew above 20 per cent each, recording break-even during the quarter.

Analysts expect earnings to grow at a compounded annual rate of 20 per cent during FY15-17.

The Titan stock is being traded at 35 times the FY16 estimated earnings.