Titan's jewellery segment growth recovers after muted Q1 performance

Titan’s June quarter performance was ahead of estimates, as muted show in the jewellery segment offset to an extent the strong show by the watches business. The company reported a 10 per cent growth in revenue to Rs 43.18 billion, compared to an estimates of around Rs 42 billion.

The jewellery segment, which accounts for 82 per cent of revenue, reported sales growth of 5.7 per cent over the year-ago period, the lowest in eight quarters, impacted by a high base. Analysts had expected a growth of 11 per cent. The company, which ended FY18 with a growth of 27 per cent in the jewellery segment, had reported a strong 54 per cent growth in the June quarter (Q1) of FY18.

The management had indicated last month that the June quarter sales would be relatively muted, given the weak demand, which also reflected in the 39 per cent fall in gold imports. Despite single-digit growth, the company indicated it had gained market share, given the 10-25 decline in industry sales. Further though, volumes were down, the company managed to gain on profit, with segment level profits up by 16 per cent and margins by 100 basis points to 11 per cent. Better product mix with higher share of studded jewellery and increased making charges, coupled with cost-control measures, helped improve profitability. With like-to-like growth in July at about 40 per cent, expect growth to be steady.

The standout performance came in from the watch segment, which reported a growth of 15 per cent over a year, led by the Titan brand. Led by higher sales growth, the segment, which accounts for 14 per cent of revenue, registered margins of 18.8 per cent. This was at a multi quarter high and was up 932 bps over the year-ago quarter. The company indicated that it could achieve double-digit margins in this segment, though maintaining it at the June quarter level would be difficult. Overall margins improved 150 bps to 11.5 per cent. In the eyewear segment, margins fell 148 bps to 1.3 per cent, though sales growth was steady at 16 per cent.

The company indicated it would stimulate demand through innovative advertising campaigns and new product launches in the coming quarters. While the stock is trading at 43 times of its FY20 estimates, analysts believe the company deserves a premium, given the growth trajectory, market share gains and long-term potential, which will result in steady earnings growth.