Gold prices have come off by about 11 per cent in the last month or so and 18.5 per cent from the peak in March 2008 of $1011 per ounce. However, at $824 per ounce, they are still up 30 per cent y-o-y.
In the three months to June 2008, net revenues for the Bangalore-based firm would appear to have risen by a reasonable 23 per cent to Rs 831 crore. However, most of the top line growth was derived not from an increase in jewellery volumes but from higher gold prices.
The company is understood to be looking to change the way in which making charges are calculated linking it to the price of gold. This should help it sustain profitability. Revenue from watches was up just under 2 per cent, which was completely out of line with the 18-20 per cent increase seen in the past few years.
However, a recently launched collection of watches for the mass segment, targeted at the youth, should help the segment recover. Moreover, the focus on high-end watches continues and should help offset the lower margins from the economy segment. Revenues from other business segments, such as precision engineering and eyewear—- the future growth drivers for the firm—- were equally disappointing, staying virtually flat at Rs 23.5 crore.
A higher share of studded jewellery pushed up operating margins by 50 basis points to 5.8 per cent for the segment. That together with lower ad spends and smaller expenses on employees, helped improve the operating profit margins by 130 basis points to 6.9 per cent.
Titan is expected to end FY09 with revenues of Rs 4,070 crore and a net profit of Rs 190 crore. That would translate into an earnings per share (EPS) of about 29 per cent. At the current price of Rs 1,249, the stock trades at 29 times estimated FY09 earnings and is somewhat expensive. However, the stock is a good play on the rising disposable incomes and aspirations of a young Indian population.