The worst is over for Titan

Titan, India's largest jewellery retailer, exited FY14 on a promising note. Hit by higher duties on gold, Titan saw its jewellery sales plummet after the June quarter. However, the fourth quarter numbers suggest the worst is over for the company. While revenues grew 7.3 per cent year-on-year (y-o-y) to Rs 2,828 crore during the quarter, profit after tax expanded 11.6 per cent to Rs 206 crore, ahead of the Street's estimates. For the full year, however, revenues rose 8.1 per cent to Rs 10,815 crore, while net profit swelled 2.2 per cent to Rs 741 crore.



The company's sequential performance suggests the worst is over across segments. Corrective measures taken by the firm in the watch and jewellery division have helped boost demand. In the March quarter, the watches and clocks division grew 20 per cent y-o-y and 11.2 per cent sequentially to Rs 501 crore. Jewellery sales remained anaemic owing to higher prices of gold in India and grew 3.1 per cent y-o-y and 2.2 per cent sequentially to Rs 2,157 crore. The 'others' segment, which include eyewear and accessories, has done exceedingly well by growing 13.5 per cent y-o-y and 25.5 per cent sequentially to Rs 146 crore.  However, the modest growth in jewellery sales has come at the cost of a slight erosion in margins due to higher discounts and advertising. Jewellery margins declined 125 basis points y-o-y to 10. 6 per cent but have expanded 111 points sequentially.

Margins for the watches division grew 114 points y-o-y and 156 basis points quarter-on-quarter to 12 per cent. Analysts claim the company has taken several measures in the watches segment, such as re-entering certain segments and price points, to boost demand. Headline operating margins stood at 10.6 per cent in the March quarter, up 140 basis points sequentially and 40 basis points y-o-y.

Analysts are positive on the stock, despite the regulatory overhang. Abneesh Roy, associate director (wholesale capital markets) at Edelweiss Financial Services, says structural demand remains intact and gold consumption is likely to improve from the second half of the current financial year. As a result, organised players will continue to gain share (10 per cent at present). The firm's sales growth of seven per cent and increase in profit after tax of 11 per cent in the March quarter is well ahead of estimates.