Titan Co. Ltd’s stock was trading more than 4% lower on NSE in early deals on Tuesday. This follows the company’s lacklustre June quarter results declared post market hours on Monday.
As such, covid-19–led disruptions had kept expectations muted to begin with. Even so, Titan’s standalone net loss of Rs270 crore is higher than the loss of nearly Rs153 crore that a Bloomberg poll of analysts had estimated.
During the quarter, total operating revenues declined by 62% year-on-year to Rs1,862 crore. This was helped by a sharp growth in other operating income, which included sale of bullion worth Rs601 crore at market rates to reduce inventory.
Titan’s mainstay jewellery business revenues declined by 56% with gold grammage declining as much as 81%. Jewellery revenue declined by a whopping 71%, excluding bullion sale. The company missed out on the auspicious "Akshaya Tritiya" sales in April owing to covid-19 lockdown. Accordingly, April sales were nil. Titan said May and June jewellery revenues dropped by about 80% and 30% respectively year-on-year.
Performance of other business segments was nothing to write home about. Revenues from watches and eyewear fell by 90% and 80%, respectively, hit by closure of stores. But note that these businesses are smaller contributors for Titan and, as such, don’t move the needle materially on an overall basis.
Titan derives the lion’s share of its revenues from the jewellery business (83% of revenue in FY20). Therefore, fortunes of the stock depend on the jewellery business to a great degree.
Here, investors will follow the speed and the extent of recovery in the coming quarters. The company has said jewellery sales in July increased by 1% year-on-year and that’s not bad in these uncertain times. It is targeting a full recovery in the jewellery segment in the March quarter (Q4FY21). If the festive season pans out better, the recovery could well be advanced. Much also depends on how consumers respond to rising gold prices.
Even as the stock has seen impressive recovery from its March-lows, Titan’s shares are still almost 20% away from its pre-covid highs seen in February. Nonetheless, valuations are not cheap. Based on Bloomberg data, the stock trades at 49 times estimated earnings for financial year 2022.
Analysts from JM Financial Institutional Securities Ltd expect the stock to be under some pressure in the near-term. “Management is not as sanguine about a quick recovery in the Jewellery business, downtrading and price competition from local players are some near-term headwinds that need to be dealt with," they said in a note on 10 August.
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