Titan: The time could pass slowly

With gold prices jumping to their highest levels since July 2008, and consumers not really in a mood to spend, some of the sheen could come off Titan’s profits in the near future. With the jewellery segments fetching nearly 77 per cent of the company’s revenues and 54 per cent of the earnings before interest and tax, the retailer’s earnings per share, which is expected to grow by around 45 per cent in the current year,could end up just 15-16 per cent higher next year. While the company has a fairly large presence across nearly 500 stores, both its own outlets and multi-branded stores, a slowing economy is expected to result in consumers spending less on discretionary items.

In fact, despite gold prices easing just before the festive season, the increase in Titan’s jewellery volumes for the December 2008 quarter in low double digits, was not impressive. Apart from it being the festive season, the quarter coincided with part of the wedding season and it was expected that consumers would have advanced their purchases. That doesn’t seem to have been the case and as a result, Titan’s top line grew by a disappointing 28 per cent y-o-y to Rs 1020 crore. With the outlook for the economy not improving, it’s possible consumers may switch to lower value items and that could pressure the company’s operating profit margins (opm). Already, in the December quarter, the opm wasn’t particularly strong at 7 per cent and was helped by lower spends on advertising and other overheads. Besides, the poor sales growth in the watches division of just 4 per cent also impacted margins. The low-end Sonata brand actually saw a degrowth implying that consumers who typically buy products at these price points have been harder hit by the inflation in food and other items. With the higher-end Titan and the Fastrack brands faring better, the division saw margins expand. Titan is a great play on the increasing affluence and aspirations of Indians more so because it has a basket of strong brands --the company’s eyewear brand is now available across 50 stores and has seen a good response. Unfortunately though the story is likely to be interrupted by the economic slowdown.