Titan had a decent Q3 update, but its shares need far more glitter

Some analysts point out that the double-digit growth in the jewellery segment reflects market share gains. Titan said studded jewellery sales moderately outpaced plain gold jewellery growth. This should aid Q3 margin. New store expansion (net) in Q3 stood at eight stores in Tanishq and 14 in Mia, taking the total store count to 510 in the jewellery business.

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Titan’s other key segments, watches and eyecare, also saw a double-digit growth, but these are too small to move the needle. Overall, this meant Titan’s standalone sales growth was about 12% on a high base.

Even so, Titan’s shares fell by 2% on Monday, a day when the Nifty 50 index was up by 1.4%. The stock’s expensive valuations also mean that earnings growth expectations are high. Perhaps, that could explain investors’ disappointment with the Q3 update.

Investors will watch how margins pan out when Q3 results are announced. The ongoing quarter (Q4FY23) would see benefits from a favourable base. Recall that last year’s March quarter was hurt by the impact of the Omicron covid wave, gold price volatility and a fragile geo-political situation. Accordingly, investors could follow if earnings estimates see upgrades.

“With 9-10% retail space addition, low base (Omicron/gold price volatility) and incremental contribution from Mia/other categories, we see scope of upgrade in Street estimates,” said analysts from Emkay Global Financial Services.

To be sure, while Titan’s earnings growth visibility is robust, any potential shortfall on this front is a risk. “It has compounded earnings by about 20% for an extended period of time. In the jewellery industry, which is organizing at a rapid pace, it is clearly at the vanguard in terms of growth among organized players. Its runway for growth is long, with a market share of about 6%,” said a note by Motilal Oswal Financial Services Ltd.

While that augurs well, the stock’s pricey valuations may limit sharp near-term upsides. The stock trades at nearly 56 times estimated earnings for financial year 2024, showed Bloomberg data.