Titan’s  Q3  margin  lacks  sheen; watch out for higher gold prices

Standalone Ebitda (earnings before interest, tax, depreciation and amortization) margin has contracted by 247 basis points (bps) year-on-year (y-o-y) to 12.2%. One basis point is 0.01%. Thus, Titan’s reported Ebitda fell by almost 5% y-o-y to ₹1,330 crore, missing the analysts’ expectations. This comes at a time when total operating revenues have grown by 14% y-o-y.

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In the mainstay jewellery business, which accounts for a large share of Titan’s revenue, average ticket sizes saw steady improvement y-o-y, said the company. Further, contribution from high value purchases increased in the overall pie. Still, analysts point out that the jewellery business Ebit margin has disappointed. While margin, excluding bullion sales, was anticipated to taper from the high levels of 15.3% in Q2, they have fallen a bit more than expected.

Jewellery Ebit margin is down 170bps y-o-y to 13%, according to Titan’s investor presentation. “Ebit margins were soft in the jewellery business and little bit in the watches business in Q3,” said Amnish Aggarwal, head of research, Prabhudas Lilladher. Watches Ebit margin fell by about 60 bps to 11%.

Titan expects jewellery Ebit margin to be in the range of 12-13%. This is not too exciting. The base for the ongoing March quarter (Q4FY23) is favourable, which should support growth numbers. Last year’s March quarter was hurt by the impact of the Omicron covid wave, gold price volatility and a fragile geo-political situation. It helps now that Titan’s commentary on demand for January is encouraging. Despite higher gold prices, it is seeing good jewellery demand this month. In the last two months, Titan saw a greater impact of the volatility in gold prices. However, better sales this month could also be owing to the wedding season.

Investors should watch if higher gold prices take a toll on near-term demand. As such, 2023 has begun on a sombre note for the stock, which has fallen by 11% so far. Despite this, valuations are pricey. The stock trades at nearly 52 times estimated FY24 earnings, Bloomberg data show. In the long-run, the company is expected to see market share gains. For now, investors seem to be capturing the brighter picture adequately.