Titan: The shine is wearing off

The weak consumer sentiment could mean subdued revenue growth for some more time

Consumers aren’t opening their just wallets, at least they’re in no hurry to buy watches or too much jewellery.

That’s evident from Titan’s sales numbers for the March 2009 quarter during which sales, at Rs 881 crore, were up a subdued 7 per cent. Revenues from the watches business were actually lower compared with the March quarter of 2008—brands such as Sonata saw huge inventories though the premium brands such as Titan did well.

Volumes for jewellery too fell by about 10 per cent and it was only higher gold prices that drove the rise in revenues.

Not surprisingly, operating profits for the jewellery business grew at a slower pace compared to earlier quarters and pushed down the pre-exception profits before tax by 11 per cent. While the Tanishq brand positioned at the higher end of the market and comprising both gold and studded jewellery fetches better margins, the Gold Plus brand positioned at the lower end brings in revenues but commands very low margins.

The company added 135 stores last year, including 59 stores of Titan Eye +but will go slow this year; it had planned to add 200 stores of Eye+ in the next couple of years but has scaled back its target.

Titan’s overseas foray has seen a setback—-two stores in the US have been shut and the company has taken a hit of Rs 29 crore.

For the current year, Titan is expected to turn in revenues of close to Rs 4,300 crore over last year’s 3,849 crore, a growth of about 13 per cent.

There will be an earnings jump in the current year given the low reported profit last year (including exceptionals of close to Rs 47 crore).

However, given that consumer sentiment is expected to remain weak for another six months or so, the stock could take a breather.