Titan maintains its jewelry growth in Q2

 Titan maintains its jewelry growth in Q2

The shares of Titan Co. Ltd. are trading close to their 52-week highs. The jewelry industry has been quite robust, which has helped the stock's perception. According to the company's most recent pre-quarterly figures, it has done a decent job of beating the broader slowdown in discretionary demand.

According to the company's interim business report, Titan's core jewelry division had revenue increase of 19% in the September quarter (Q2FY24), excluding bullion sales. In contrast, the June quarter had 19% increase and the March quarter saw 24% growth. In summary, Titan has consistently delivered in the jewelry sector, which accounted for almost 85% of total sales in FY23.

Buyers and ticket sizes increased by double digits over the previous quarter for the business. The activation (promotions) for studded jewelry, new collection debuts, strong Golden Harvest scheme sales, a good wedding season, and high-value studded jewelry purchases all helped Q2 jewelry growth. The watch industry, which is comparably smaller, had higher growth at a rate of 32%. Therefore, Titan anticipates a 20% increase in total standalone revenue year over year in Q2FY24.

Everyone is interested in learning if the jewelry industry's development pace will continue. The approaching festival/wedding season and declining gold prices may in the short term increase sales in the December quarter. But additional macroeconomic deterioration (read: persistent inflation) might reduce demand for gold jewelry. According to Jay Gandhi, analyst at HDFC Securities, "we feel that the current revenue growth rate in Titan's jewelry business is unlikely to sustain beyond Q3FY24."

Rising competitive intensity undoubtedly has the potential to ruin a party. Due to quicker retail development, smaller competitor Kalyan Jewellers Ltd witnessed a 32% increase in domestic jewelry sales year over year in Q2. Kalyan is anticipated to outpace Titan on sales growth in FY24, according to ICICI Securities Ltd, and surpass its store expansion forecast for FY24. The brokerage points out that Kalyan (41 shops) and Tanishq (40 stores) have both launched more outlets in India over the last 12 months.

Titan does indeed work hard to promote growth. The corporation is spending money on customer deals and exchange programs in an effort to maintain growing momentum. On the other hand, this can put pressure on margins. Remember how Titan's jewelry margin suffered in Q1 amid high gold prices because it had to increase its gold exchange program to counteract the uncertainty in customer demand. Investors will thus closely monitor the margin trend after the release of Q2 data. In this context, management's comments on the expected 12–13% jewelry earnings before interest and tax margin for FY24 are crucial.

Tanishq increased its market share in the Gulf in Q2 by entering Qatar and opening two more boutiques in Doha. Tanishq, Mia by Tanishq, and Zoya each added one shop to the 37 new stores (net) added in India during the last quarter.

There aren't many issues for Titan's stockholders to gripe about. The stock has increased by about 26% so far in 2023, outperforming benchmark Nifty50 by a significant margin. The Titan stock has been plagued by expensive values for a time. According to Bloomberg statistics, the stock is now trading at 62 times the FY25 anticipated profits. "If we look at Titan's FY25 PE multiple, then it shows that the market is extrapolating growth rate trends seen in jewellery division," said Gandhi. "Unorganized jewelers are a greater source of competition, particularly when it comes to charging. This implies that even though Titan may have sales growth, operating margin may disappoint moving forward," he said.