Titan sparkles less in March quarter on dull jewellery sales

Market


BENGALURU/MUMBAI :

Titan Co. Ltd’s shares are down 5% so far this calendar year and are nearly 14% lower than their 52-week high of 2,768 seen on 21 March on the National Stock Exchange. Valuations of the stock are high. At present, the stock is trading at about 70 times estimated earnings for financial year 2023, based on Bloomberg data.

Investors looking for some triggers from the company’s fourth quarter (Q4FY22) could be in for some disappointment. Recall that Titan had indicated revenue trends in its update last month and that fell short of expectations. As such, margin performance was the main factor to watch out for in Q4 results announced on Tuesday, a stock market holiday.

Reduced sparkel

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Reduced sparkel

The company’s standalone earnings before interest, taxes, depreciation and amortization (Ebitda) declined by 1.6% year-on-year to 782 crore. Staff costs, advertising costs, and other expenses rose sharply by 31%, 97% and 27%, respectively. There are one-off items, too. The company announced an ex-gratia payment of 72 crore during the quarter to reward its employees and this is included in employee costs. Overall, Titan’s Ebitda margins contracted by 39 basis points (bps) year-on-year (y-o-y) and 396 bps, sequentially. One basis point is 0.01%. The Ebitda performance is below analysts’ expectations.

The company’s mainstay jewellery business reported a 200 bps drop in its earnings before interest and tax (Ebit) margin sequentially to 12.7%. This excludes bullion sales. According to Titan, excluding one-offs, jewellery Ebit margin stood at 13.1%.

Q4 was a challenging quarter because of the impact of the Omicron variant of coronavirus, gold price volatility, and a fragile geopolitical situation. Jewellery revenues were flattish y-o-y after adjusting for a large B2B order in the base quarter. Consumers deferred buying because of volatility in gold prices. According to the investor presentation, the wedding category saw about 9% y-o-y drop in revenues. Studded jewellery revenues grew 7% y-o-y and its ratio in the overall mix improved by about 400 bps. However, the plain jewellery segment declined by 4% y-o-y.

“Gold prices in the last one week seem to have moderated downwards,” Titan’s management said in a post-earnings call. The company is hopeful about the wedding season this time around. It also indicated that performance in April has been encouraging.

Titan’s watch segment was a drag. While watch revenues grew by 12% y-o-y, growth in the quarter was entirely led by value with volumes remaining flattish. Eyecare business revenues increased by 5.5%. However, the contribution from these segments is small.

Titan also introduced a voluntary retirement scheme in Q4 for its long-serving employees. It incurred an exceptional one-time cost of 51 crore pertaining to employees opting for the scheme. This weighed on the reported net profit, which was 491 crore, a 7% drop from the year-ago period.

Even so, Titan has done reasonably. “Despite various headwinds, Titan reported robust (consolidated) revenue growth of 36% y-o-y in FY22 and continues to be one the fastest growing discretionary companies (two-year CAGR: 15%),” said ICICI Direct Research analysts in a note. “Robust performance in challenging times reaffirms our thesis of long-term market share gains for Titan,” they said.

The stock’s pricey valuations suggest investors are capturing a good portion of the positives. Investors will watch for steady pick-up in demand, which should reflect in volumes.

 

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