Long-term investors likely to use the dip to 'accumulate' Titan's stock

Although the share price of jewellery major Titan dropped sharply post the business update of the July-September quarter (Q2) of FY25, analysts were extremely positive on the company’s performance.

Titan beat growth expectations across most segments and this led to likely earnings upgrades for FY25 to the tune of 4-5 per cent.

The company’s jewellery segment reported 26 per cent year-on-year (Y-o-Y) growth in Q2 against 9 per cent growth in Q1.

It claims that a 900 basis points (bps) duty cut on gold imports (from 15 per cent to 6 per cent) impacted demand momentum with a double-digit Y-o-Y pick up in gold volumes.

The revenue mix saw low-double-digit growth in the high-margin studded segment (vs 25 per cent overall growth).

High growth in the non-solitaire studded segment was offset to some extent by decline in the solitaire segment where international price volatility played the role of dampening demand.

But Titan will easily meet its median 12 per cent jewellery earnings before interest and taxes (EBIT) margin guidance in FY25.

The watches segment grew faster at 20 per cent with 25 per cent growth in analog watches despite double-digit decline in wearables (watches & wearables or W&W are a single division). This came as the category faced a significant downturn. 

Eyewear growth at 6 per cent is in line. The watches & wearable segment’s domestic business grew 19 per cent Y-o-Y with watch premiumisation being a driver.

The caratlane and emerging segments saw 28 per cent and 14 per cent Y-o-Y growth, respectively, in Q2FY25. This is against Q1 growth of 18 per cent and 4 per cent.

Fragrances, fashion accessories (F&FA) revenue grew 17 per cent Y-o-Y while within the segment, fragrances grew 19 per cent and fashion accessories rose 11 per cent.

There were 75 store additions across segments. Total retail presence (including CaratLane) stood at 3,171 stores at the end of Q2FY25.

Buyer growth was 11 per cent Y-o-Y, driven by the launch of new collections, promotions, and marketing campaigns. With 286 stores, Caratlane grew 28 per cent.

Titan expects to maintain revenue momentum through leveraging its synergy in channel expertise in order to drive volumes. It will focus on premium watch brands and formats, higher investments and deeper cost initiatives through its War-on-Waste programme. It drew attention to its consumer-centric approach and enduring relationships with customers in its update.

The challenges include growing competition in jewellery, gold price volatility, while an improved product mix and consolidation of Caratlane could improve margins.

The guidance of 11.5-12.5 per cent EBIT margin is driven by expected surge in studded jewellery, cost initiatives led by War on waste 2.0, which will lead to savings, consolidation of Caratlane and a rising contribution from international businesses, which look to achieve faster breakeven. 

Titan’s strategy of focusing on serving millennials, meeting their aspirational demand with the introduction of new designs and channels, alongside a rising share of wedding jewellery could pay off well.

The turnaround in Caratlane, W&W, and eyewear divisions and continuity in profitability potential will be monitorables. At the macro level, prolonged economic slowdown and gold price volatility are both significant risks.

This could be a period when patient long-term investors can exploit a temporary dip in prices, as the fundamentals look intact.