Titan : Losing some lustre

Rising gold prices could take the sheen off the jewellery retailer's volumes and profits.

Jewellery and watch maker, the Rs 2,091crore Titan Industries could see demand for its gold jewellery coming off as prices of the yellow metal touch new highs.

While there is undoubtedly strong demand for branded jewellery, the sharp rise in the price of gold, currently ruling at around Rs13,000 for 10 gm, could see demand for gold jewellery tapering off.

Thus, volumes for the Tata-owned retailer could moderate over the next couple of years, to below 20 per cent compared with a volume growth of over 30 per cent in the last couple of years.

While jewellery sold under the upmarket Tanishq brand could continue to see good demand, there could be some moderation in the sales for the Gold Plus brand, under which plain gold jewellery is retailed in semi-urban and rural areas.

The Rs 2,000 crore organised jewellery market, representing currently just 3 per cent of the total jewellery market in the country, is tipped to grow by 25-30 per cent in each of the next three years, driven by rising disposable incomes and aspirations.

However, the overall slowdown in the economy coupled with rising gold prices could see Titan's jewellery volumes growing less than expected.

The firm's jewellery business, it is estimated, will grow by about 40 per cent to Rs 5,500 crore in three years time from about Rs 2,000 crore in FY08, driven mainly by the high- margin diamond studded segment.

The division should contribute approximately 68 per cent of the company's revenues in FY08 and is expected to account for a larger share, of close to 75 per cent by FY11. Titan is expected to close FY 08 with revenues of about Rs 2,900 crore and net profits of Rs 115 crore.

In the following year, the company should manage sales of about Rs 4,500 and profits of Rs 160 crore. From its peak price of Rs 1755, the stock has come off to Rs 915 , a retracement of nearly 50 per cent.

At these levels the stock trades at 25 times estimated FY09 earnings and while it is a great play on the growing consumerism in the country, appears somewhat expensive in the current situation.