Gold price, valuation hurdle for Titan stock; firm outperforms market

On a day when the broader markets were down 2 per cent, Titan remained the sole large-cap stock in the Sensex ending in the green. The stock was up 1.7 per cent after it announced double-digit sales uptick for its jewellery segment in the December quarter. Sales in the segment, which had declined by 1.5 per cent in the September quarter, have bounced back, registering a growth of 11 per cent. 

Adjusting for a large institutional order in the year-ago quarter, retail growth has been much higher than expectations at 15 per cent. The increase in sales has been led by the festive season, especially demand for wedding jewellery which the company indicated was inelastic. Growth would have probably been higher but for the disruption caused by protests and forced closures in the Northeast and other parts of the country during the second half of the company. 

  

Given its track record, analysts expect the company to outperform the sector on the back of new launches and retail expansion. The company is planning to add 50 stores (down from the target of 60 due to operational delays), especially in smaller towns in the current financial year. In addition to market share gains, higher share of studded jewellery (which has been trending up and is currently at 38 per cent of jewellery) should help improve its margins. 

While jewellery sales outperformed, sales growth in watches/wearables and eyewear segments disappointed. Sales in the timewear segment were flat due to poor consumer sentiment and lower offtake from trade. The company, however, gained some share as industry sales in the quarter were down 4 per cent. Eyewear segment growth was restricted to 2 per cent due to competitive pressure, lower sales to trade, and impact due to protests and closure in December. 

Compiled by BS Research Bureau

While brokerages are positive, given its performance comes on the back of muted economic environment and a high base, there are certain headwinds for the stock. The sharp rise in gold prices is a key worry and could dent its sales which were the case in the September quarter. Given the geopolitical uncertainty, analysts expect gold prices — which hit their lifetime high on Monday — to trend higher. The other negative for the stock is valuation. At 50x its 2020-21 earnings estimates, it is ignoring the potential slowdown in jewellery sales.