Rising gold prices could hurt retail volumes.
With the price of gold moving up steadily —10 per cent increase in the last couple of months — it’s not surprising that the Titan stock isn’t doing much. Between early July and now, the stock has gained just under 5 per cent. Even though the festive season is round the corner, the jewellery and watch maker may not find too many customers with the price of gold hovering close to the $1,000 per ounce mark.
Since jewellery accounts for nearly 70 per cent of the business, it is a cause for concern. Should prices stabilise at these levels, business should be brisk in the wedding season. While the last wedding season didn’t fetch Titan too much in terms of sales, the economy is now in a much better shape with consumers more confident about their jobs and income. In the June 2009 quarter, the Bangalore-headquartered firm posted a single-digit growth in revenue, even though the period coincided with one of the main wedding seasons. Of course, gold prices had risen about 20 per cent during the quarter and that hurt jewellery volumes, which came off by 10-12 per cent.
It’s also possible that the retailer lost out to competition, especially store brands. So, although Titan earned better realisations, revenues for the segment were up just 3 per cent. In fact, it was the watch business that did well to post a revenue growth of 21 per cent year-on-year, after a rather lacklustre March 2009 quarter.
The profitability of the division showed a sharp increase with premium brands doing well. Titan’s strong portfolio of brands across jewellery, watches and eyewear and its strong retail network of more than 500 stores leaves it well-positioned to cash in on the growing affluence and consumerism in the country. In the current year, revenues are expected to grow around 15 per cent over Rs 3,834 crore last year, while stronger operating margins are expected to drive up profits by about 30 per cent over Rs 175 crore posted last year. However, at Rs 1,279, the stock trades at over 24 times estimated 2009-10 earnings and is rather expensive.
