Titan gains 3%, hits nearly five-month high on decline in gold prices

In the past one month, Titan has outperformed the market by surging 10 per cent, compared to the 4.5 per cent rise in the BSE Sensex during the period.

Shares of Titan Company hit a nearly five-month high of Rs 3,730, as they rallied 3 per cent on the BSE in Thursday’s intra-day trade, in an otherwise subdued market, on expectations of an improvement in consumer demand due to soft gold prices. 

The stock of the gems, jewellery and watches company is trading at its highest level since April 9, 2024. It has rebounded 18 per cent from its 52-week low of Rs 3,059 that it touched on June 4, 2024.

At 11:41 AM, Titan was quoting 3 per cent higher at Rs 3,730, compared to the 0.08 per cent decline in the BSE Sensex. The average trading volumes on the counter jumped two-fold, with a combined 1.7 million shares changing hands on the NSE and BSE.

Gold prices slipped to their lowest level in nearly two weeks on Wednesday, extending their decline to the fourth straight session, as markets priced in a smaller rate-cut from the US Federal Reserve's policy meeting this month.

Gold traded weaker primarily due to profit booking ahead of the expected non-farm payroll data set to be released later in the day in the US, which is anticipated to be higher than the previous month.

"This could reduce the likelihood of a 0.50 basis point rate cut in the upcoming US Federal Reserve policy meeting on September 18. With a 0.25 basis point cut already priced in, market participants are now awaiting clear signals for a potential 0.50 basis point cut or at least definitive indications of future rate cuts," said Jateen Trivedi, VP Research Analyst - Commodity and Currency, at LKP Securities.

In the past one month, Titan has outperformed the market by surging 10 per cent, as against a 4.5 per cent rise in the BSE Sensex over the period. However, in the past six months, the stock has underperformed the market by falling 1 per cent, as compared to the 12 per cent rally in the benchmark index.

The underperformance in the company's stock price was mainly due to the weak operational performance of the company in the June quarter (Q1FY25).

Gross margins of the company fell by 12 bps to 22.1 per cent in the first quarter of the current fiscal due to a higher share of gold exchange at over 35 per cent, and  elevated competition driving discounting and promotions. Demand was soft, driven by volatile and elevated gold rates and high competition.

The first quarter also saw a convergence of multiple forces that impacted the company's topline. A steep rally in gold rates (20 per cent increase over Q1FY24), election led restrictions in many markets, very few wedding dates and an unprecedented heat wave across the country, also weighed on overall consumer demand, Titan said.

The company’s jewellery business accounted for nearly 96 per cent of its total income.

In the recently presented Union Budget, the custom duty on gold imports in the country has been reduced from 15 per cent to 6 per cent. This development has long-term positive implications for the Jewellery industry.

“While this change is likely to entail a short-term impact in the form of value loss on duty paid gold inventory (expected to be expensed over the next two quarters), we remain optimistic on the longer-term benefits as it makes the market equitable for large businesses like ours,” the company's management said.

Titan's management has set ambitious goals for each division and expects the jewellery division's sales to grow at a CAGR of 15-20 per cent in the medium term.

The company has met this target, despite the slowdown in the broader consumption space. Further, analysts at BNP Paribas see opportunities for the company, in aspects such as expansion in store count, market share gains and international expansion to help drive revenue and earnings growth.

“We see Titan as an earnings compounding story. A positive surprise could come from higher-than-expected market share gains in India. Its international business is still at a nascent stage but looks promising. A faster-than-expected ramp up of the international business could result in a positive surprise,” the brokerage firm said.

It maintains an ‘Outperform’ rating on the stock, with a target price of Rs 3,860 per share.

Analysts at Centrum Broking were also upbeat on Titan’s operating performance, led by strong demand across business segments, along with its firm footing in the international market that appears to be promising. 

“We reckon Titan’s strategy revolving around serving millennials, meeting their aspirational demand with introduction of new designs and channels, yet rising share of wedding jewelry could pay richly. The turnaround in the Caratlane, W & W, and eyewear divisions and continuity in their profitability potential need to be watched,” analysts said. 

With a stable operating margin outlook, the brokerage firm retains a 'Buy' rating on the company, with a DCF-based target price of Rs 4,337 (implying 58.7x 26E EPS).