Ti­tan Q1 re­sults sig­nal less glit­ter in jew­ellery biz

Mint Asia ST - - Mark To Market -

Ti­tan

Co. Ltd’s profit wasn’t boosted by the jew­ellery busi­ness this time around. Growth in the seg­ment slowed to 5.7% yearon-year for the June quar­ter. Sure, the base was high. Even so, jew­ellery seg­ment per­for­mance fell short of the man­age­ment’s own in­ter­nal tar­gets and dis­ap­pointed the Street.

For the sake of com­par­i­son, the seg­ment had seen 24% growth for fis­cal year 2018.

As men­tioned ear­lier, the base was un­favourable with jew­ellery seg­ment rev­enue in­creas­ing by an im­pres­sive 54% in the June 2017 quar­ter. The quar­ter had in­cluded ad­vance­ment of sales (worth ₹ 250 crore) in an­tic­i­pa­tion of a high goods and ser­vices tax rate.

Com­ing back to this year’s June quar­ter, what also hurt growth was that con­sumer sen­ti­ment re­mained weak in the month of June. Higher gold prices may have dis­cour­aged some con­sumers from pur­chases and there were fewer wed­ding days than usual.

Ac­cord­ing to the man­age­ment, in­dus­try rev­enue de­clined 10-25% year-on-year and Ti­tan gained mar­ket share in line with ex­pec­ta­tions, even as re­ported growth was 10 per­cent­age points be­low in­ter­nal ex­pec­ta­tions, pointed out an­a­lysts from Ko­tak In­sti­tu­tional Eq­ui­ties in a re­port on 3 Au­gust.

The com­pany’s earn­ings pre­sen­ta­tion says gold gram­mage de­clined 3% dur­ing the June quar­ter from a year ear­lier. That was the poor­est per­for­mance seen in the last seven quar­ters.

It helped that Ti­tan’s watch busi­ness com­pen­sated a bit, with Ebit (earn­ings be­fore in­ter­est and tax) more than dou­bling (up 128%) to ₹ 111.32 crore. Watch seg­ment rev­enue grew by 15%. Ebit mar­gin at 18.8% was the high­est in the past 13 quar­ters at least, helped by a bet­ter prod­uct mix and cost-con­trol mea­sures.

How­ever, sus­tain­abil­ity of these mar­gins will be a fac­tor to watch out for. Also, the watch busi­ness doesn’t move the nee­dle mean­ing­fully for Ti­tan given its much smaller share of rev­enue (13.6% of to­tal for the June quar­ter). Jew­ellery seg­ment rev­enue ac­counted for 82% of the to­tal last quar­ter.

Over­all, Ti­tan’s stand-alone rev­enue and net profit in­creased 8% and 31% to ₹ 4,319 crore and ₹ 349 crore, re­spec­tively. What of the stock? Ti­tan’s shares have un­der­per­formed the Sen­sex so far this fis­cal. But in­vestors haven’t re­ally lost out. In the past one year, the stock has ap­pre­ci­ated as much as 57% from its an­nual clos­ing low seen on 28 Septem­ber. Not sur­pris­ingly, val­u­a­tions are steep.for val­u­a­tions to sus­tain at these lev­els, the jew­ellery seg­ment per­for­mance has to re­cover on a con­sis­tent ba­sis.

HDFC As­set Man­age­ment Co. Ltd’s (HDFC AMC’S) ini­tial pub­lic of­fer­ing set the Street on fire, with list­ing gains as high as 65%. The mu­tual fund com­pany is now val­ued at 12.54% of its av­er­age as­sets un­der man­age­ment (AUM) in the June quar­ter, which puts its val­u­a­tion at al­most dou­ble the lev­els of Re­liance Nip­pon Life As­set Man­age­ment Ltd. In­clud­ing Re­liance’s

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