Titan: Losing some sheen

With gold prices soaring to nearly Rs 1,700 per gram, sales of jewellery could be somewhat lacklustre during the coming wedding season. As it is, Titan's September 2009 quarter revenues were up five phttp://www.blogger.com/moderate-comment.g?blogID=3747989201941910550er cent at Rs 1,150 crore resulting in a fall in the operating profit of 14 per cent.
For several quarters now, the jewellery business hasn't seen any meaningful rise in volumes and according to analysts, volumes have actually fallen in the last three quarters by 8, 15 and 11 per cent.
It's true that the past year has seen a runaway rise in gold prices at a time when the macro-environment has been weak. But while consumers may have resumed spending, gold prices remain high.

Jewellery accounts for two-thirds of Titan's operating profit and with the jewellery business growing faster than the watches business, operating margins for the company, contracted 220 basis points to 8.7 per cent in the September 2009 quarter
Indeed, the poor performance of the watches division in the September 2009 quarter, where sales dropped 2.6 per cent, came as a bit of a surprise after the excellent show reported in the June quarter when sales were up 21 per cent. Brands such as Sonata are understood to have fared badly. However, the business remains profitable with higher sales of top-end brands and sales should pick up as dealers start restocking.
Titan plans to go slowly on its rollout of stores, especially the gold Plus outlets, in the wake of weaker-than-expected demand. Also, while it had earlier hoped to have around 120-130 Titan Eye stores by March next year, the plans have been scaled back. Nevertheless, it's extensive reach and strong portfolio of brands make Titan a good play on growing consumer aspirations and incomes.
In 2010-11, Titan is expected to grow revenues by about 19-20 per cent to Rs 5,300 crore while net profits are estimated to grow 16-18 per cent to Rs 270 crore. However, at the current price of Rs 1,370, the stock trades at a fairly expensive multiple of over 22 times estimated 2010-11 earnings.

Source: Business Standard