Chart beat: What higher gold prices mean for Titan
₹71,319 per 10 grams on the MCX so far in 2024. The implications of rising gold prices on Titan Co Ltd are worth evaluating as the jewellery business is the company’s mainstay, contributing 88% of FY24 revenues. ICICI Securities has analysed the data for the past 10-15 years and has found that a secular rise in the price of gold brings more tailwinds (1% rise in gold price leads to 2% increase in earnings before interest and tax, or Ebit) than headwinds.
This is because the demand for wedding jewellery is relatively inelastic in value terms, making charges paid by Titan consumers are linked to the price of gold, and Titan hedges its gold price exposure completely. Also read: Robust power demand charges IEX stock, aids earnings outlook Typically, when gold prices are volatile, consumers prefer to postpone their purchases in anticipation of lower prices, which adversely affects demand. This also means a steady rise in gold price is welcome even as it hurts sales volume, especially given that consumers often have a fixed budget for purchases.
Still, on a ‘revenue per store’ metric, ICICI Securities notes that a higher gold price leads to higher realisation for Titan’s flagship brand Tanishq, owing to the benefit of linking making charges to the gold price. As the chart below shows, over FY09-23, the price of gold has increased a compound annual growth rate (CAGR) of 12% while Titan’s revenue per store has increased at a CAGR of 11%. Titan stock has been an investors’ favourite for quite some time.
But amid rising competitive pressures in the organised jewellery market, it's down about 3% so far in FY25, versus an almost 12% gain in the benchmark Nifty 50 index. Yet, valuations remain pricey. The stock trades at nearly 64
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