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Informist, Monday, Jul 29, 2024

By Anshul Choudhary

MUMBAI – A rise in prices of gold would likely have hurt Titan Co Ltd's margins during the June quarter, resulting in a decline in its net profit. Competition from regional players, along with fewer wedding days, would have also affected earnings during the quarter, analysts said.

The Apr-Jun net profit of the company, which owns the brand Tanishq, is expected to fall 3.5% on year to 7.50 bln rupees, according to the average of estimates by six brokerages. Sequentially, it is seen 4.6% lower. Analysts' estimates for net profit were in the range of 6.93-8.05 bln rupees. Titan is set to report its earnings on Friday.

In its quarterly update on Jul 5, Titan said its revenue in Apr-Jun rose 9% on year. Among major segments, the company said its jewellery sales grew 9% on year, watches and wearables sales grew 15%, and eyecare sales grew 3%. The average of estimates from six brokerages also pegged revenue growth at 9% to 121.81 bln rupees.  

The company's revenues from the CaratLane business witnessed a growth of 18% in sales, as per the quarterly update. Emkay Global Financial Services said growth of the business was impacted due to slower store additions over the last 12 months. Titan added three stores in Apr-Jun for its CaratLane business, as per the quarterly update.

Most analysts expect earnings before interest and tax margin for its largest segment of jewellery to fall on year. "There would be pressure on margin due to an increase in competition and gold prices," Motilal Oswal Financial Services said in its earnings preview report. Brokerage Prabhudas Lilladher and Kotak Institutional Equities expect the EBIT margin for the segment to come in at 10.8% in Apr-Jun. The segment's EBIT margin during the June quarter last year was 11%.

"In addition to this, higher competitive intensity, resulting in rationalisation of gold rate mark-up, higher investments in gold exchange program and gold rate protection offers (necessitated by the sharp rise in gold prices) are offsetting the gains from operating leverage and a reduction in franchisee commissions," Kotak Equities said in its earnings preview report.

These concerns around Titan's margin are not new and have led to poor stock returns this year. Shares of the company are down over 7% so far this year. At 0936 IST, shares of the company traded 0.5% higher at 3,427.10 rupees on the National Stock Exchange.

Titan's earnings before interest, tax, depreciation, and amortisation is seen at 11.87 bln rupees, according to the average of estimates by five brokerages. The estimates pegged it in a range of 11.47 bln rupees and 12.38 bln rupees. The company's EBITDA in the June quarter last year was 12.02 bln rupees.

Analysts said the earnings may improve in the second half of this financial year as the wedding season picks up. Further, the government in the Union Budget cut customs duty on gold by 6%, which could boost demand for jewellery products in the coming quarters. However, this cut also means companies such as Titan are looking at inventory loss due to a fall in gold prices post the cut in duty. The August futures contract of gold on the Multi Commodity Exchange of India has fallen over 6% since the Budget announcement.  

Following are the Apr-Jun earnings estimates, in mln rupees, of Titan Co from six brokerage houses:

End

Edited by Namrata Rao

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