If one goes by the second-quarter (Q2) numbers of Titan Industries, consumer sentiment in the country is anything but upbeat. Discretionary spending is under stress and consumers are deferring purchases. Titan, as a result, has not sold as many gold coins, watches and pieces of jewellery as it did last year. In Q2, sales grew at a modest 9.5 per cent year-on-year (y-o-y) to Rs 2,288 crore. This was broadly in line with market expectations. What has come as a surprise is the 21.3 per cent y-o-y growth in net profit to Rs 180 crore, which has been driven by higher margins. The company’s Q2 operating margins stand at 11 per cent, up 90 basis points (bps) annually and 140 bps sequentially.
While the company has seen all segments grow, the rate is nowhere near the 20 per cent levels seen in good times. Clearly, consumer sentiment is not what it was last year. The first half of FY13 has been particularly challenging for Titan, with both jewellery and watch coming under pressure. While Q1 saw jewellery volumes fall due to the strike, Q2 has seen slower demand as the festive season has been delayed. For instance, the watch segment has grown 13 per cent, but operating margins have collapsed to 11.6 per cent. The company has acknowledged that it is a worrying trend and it is being addressed internally. Dhvani Modi, research analyst at ICICIdirect, says: “The key positive from the results is improvement in the operating margin led by better margins in the jewellery segment. While jewellery volumes were low, a higher share of studded jewellery aided the margin expansion. The watch segment continues to see pressure as the product mix in the watch segment is increasingly getting skewed towards low-margin products.”
For obvious reasons, the jewellery segment too, has seen a volume decline (in terms of grammage) of 11 per cent but in value terms sales are up 5.7 per cent y-o-y, as gold prices are up compared to last year. However, higher EBIT margins of this segment have helped the overall profitability. The segment has clocked margins of 12.5 per cent compared to 9.7 per cent in the corresponding quarter previous year. The reason behind this is higher sales of studded jewellery and slower sales of low-margin gold coins. The management says it has actively not pushed the sales of coins. The third quarter is expected to be better as festivals and the wedding season fall during this period.
