Titan slips 4%, nears 52-week low on margin disappointments in Q2

The consolidated profit before tax was lower by 24 per cent YoY at Rs 948 crore mainly due to impact of custom duty reduction

Shares of Titan Company slipped 4 per cent to Rs 3,113.65 on the BSE in Wednesday’s intra-day trade in an otherwise firm stock market after the company reported disappointing numbers for the second quarter ended September 2024 (Q2FY25).   Titan's earnings before interest, tax, depreciation, and amortisation (Ebitda) margin contracted 80 bps year-on-year (YoY) to 10.5 per cent.

 

At 09:54 AM, Titan was trading 2 per cent lower at Rs 3,168.45, as compared to the 0.61 per cent rise in the BSE Sensex. The stock had hit a 52-week low of Rs 3,059 on June 4, 2024. Thus far in the calendar year 2024, Titan has underperformed the market by falling 14 per cent. In comparison, the benchmark index has rallied nearly 11 per cent during the same period.

 

The company's consolidated profit before tax (PBT) was lower by 24 per cent YoY at Rs 948 crore mainly due to the impact of custom duty reduction. The company’s net profit fell 23.1 per cent YoY to Rs 704 crore. Titan recorded consolidated total income of Rs 13,660 crore, growing by 26 per cent in Q2FY25 compared to Q2FY24.

 

The owner of the Tanishq brand of jewellery stores saw its income from the jewellery business grow 26 per cent to Rs 10,763 crore on a standalone basis, compared to the corresponding quarter last year. 

 

Titan said the custom duty reduction saw a revival in consumer interest as gold prices cooled off temporarily. The ensuing gold rush lasted well into mid-September. The company added that buyer growth was healthy during the period, and accompanied by an increase in average selling prices, with both exhibiting double-digit growths. During the quarter, in India, Tanishq opened 11 new stores (net), Mia added 12 and Zoya added one store, respectively.

 

After a muted first quarter, the company witnessed encouraging growth across key businesses in Q2. Jewellery clocked healthy double digit growth for the quarter. The buyer growth metrics were fairly strong and in good double-digits across gold and studded product categories. The quarter also witnessed analog watches growing 25 per cent plus over the last year with commensurate uptick in volumes. 

 

On account of the customs duty related losses, as well as the need to invest in growth of various businesses, the profitability of Q2 was quite depressed. However, the management is quite confident about the competitiveness of each of the company’s businesses and remains optimistic about its performance for rest of the financial year.

 

Titan is a joint venture between the Tata Group and the Tamilnadu Industrial Development Corporation (TIDCO).

 

With the jewelry industry seeing faster formalisation, we believe that Titan will continue to benefit, driven by store additions, multi-format presence, better designs and customer understanding, and a strong recall of trust. Although the margin trajectory has been weak for the last 4-5 quarters, Motilal Oswal Financial Services (MOFSL) expects limited pressure going ahead. The brokerage firm reiterated its 'Buy' rating on the stock with a target price of Rs 3,850 (premised on 60x Sep’26E EPS).

 

Titan, with its superior competitive positioning (in sourcing, studded ratio, youth-centric focus, and reinvestment strategy), has continued to outperform other branded players. The brand recall and business moat are not easily replicable; therefore, Tanishq’s competitive edge will remain strong in the category, MOFSL stated. The company's store count reached 3,171 as of Sep’24, and the expansion story remains intact, it added.

 

Titan’s Ebitda margin has been under pressure during FY24 and H1 FY25 owing to a lower studded mix. It will be critical to monitor the margin outlook amid intensifying competition. The non-jewelry business is also scaling up well and will contribute to growth in the medium term. The business currently accounts for 13 per cent of revenue and 12 per cent of Ebit, MOFSL said in result update.