Titan loses shine as rising gold price plays spoilsport

A cardinal disappointment successful Q4 was the debased nett borderline successful Titan's mainstay jewellery business, which contributed 89% to standalone revenues successful FY24. In Q4, jewellery sales, excluding bullion sales, roseate astir 19% year-on-year to ₹8,998 crore. However, portion the mean selling terms saw single-digit increase, caller lawsuit acquisitions made up conscionable astir 54% of jewellery customers.

Increasing promotional spending

Titan had to ramp up promotional spending and discounts to pull buyers amid sluggish demand, rising competition, and fluctuating golden prices, which weighed connected its margins. Consequently, jewellery Ebit (earnings earlier involvement and taxes) borderline declined 110 ground points to 12.1%, marking the 4th consecutive 4th of year-on-year contraction successful jewelry Ebit margins, according to Titan's net presentation.

Its absorption expects operational headwinds to persist for astatine slightest 2 much quarters. “I americium not anticipating it (margins) to spell up quickly. We volition instrumentality our clip to respond to elevated golden rates. I americium hoping that from Q2 onwards we volition commencement seeing immoderate improvements, fixed that immoderate of these efforts whitethorn instrumentality time...," Ajoy Chawla, the main enforcement of the jewellery business, said during the post-earnings call.   

Gold prices surged astir 8% successful Q4. The upward inclination persisted successful April, with the yellowish metallic breaching the ₹70,000 per 10gm people for the archetypal time. 

According to Titan's management, some organized and unorganized players are connected an enlargement spree. The highly-fragmented unorganized assemblage accounts for astir two-thirds of the Indian jewellery market.

Impact of lab-grown diamonds

Apart from gold, Titan besides faces an emerging threat: lab-grown diamonds. The absorption acknowledged the accelerated maturation of lab-grown diamonds successful the US market, but said that it is inactive premature to measure the interaction connected its business. Studded jewellery constitutes 33% of Titan’s jewellery vertical. 

Despite the headwinds, Tanishq opened 11 caller stores successful India, and Mia added 16 during the quarter. While Tanishq’s store number stands astatine 479, including 15 overseas outlets, Mia boasts 178 stores.

For its watches and wearables business, maturation was subdued astatine 8% year-on-year astatine ₹ 940 crore, chiefly owed to price cuts aimed astatine remaining competitive. The eyecare division’s topline was level astatine ₹166 crore. The firm's emerging businesses (fragrances and manner accessories) saw 26% gross maturation to ₹97 crore, but with an Ebit nonaccomplishment of ₹22 crore.

Investors person been cautious. So acold successful 2024, Titan’s shares person fallen by astir 4%, portion the benchmark Nifty 50 scale gained 3%. Still, valuations are steep, offering small comfort. Based connected FY24 net per share, the stock's price-to-earnings aggregate stands astatine 90x. 

“Several factors, including planetary cardinal slope purchases, ostentation concerns, and geopolitical tensions, are apt to support golden prices connected an upward inclination this year. This could enactment arsenic a headwind for Titan, perchance starring to a near-term underperformance successful its banal price," said Santosh Meena, caput of research, Swastika Investmart.  

Margin unit for the adjacent aboriginal cannot beryllium ruled retired owed to precocious golden prices and rising competition. In presumption of the ongoing borderline challenges, particularly successful H1FY25, Nuvama Institutional Equities analysts chopped profit-after-tax estimates by 6% each for some FY25 and FY26. The brokerage has downgraded the banal to ‘Hold’ standing from ‘Buy’ with a revised people terms of ₹3,867. 

On Friday, Titan’s shares closed astatine ₹ 3,533.90 apiece connected the NSE. 

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