Titan faces pressure in solitaire

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Subscribe to enjoy similar stories. MUMBAI : Titan Co. Ltd’s jewellery business revenue growth of 26% year-on-year for the September quarter (Q2FY25), excluding bullion sales, was propelled by a reduction in custom duty to 6% from 15%.

But at the same time, inventory loss from lower custom duty and a weaker product mix dragged the profit margin lower. In Q2, the reported standalone jewellery Ebit margin contracted as much as 540 basis points (bps) year-on-year to 8.7%. Ebit is short for earnings before interest and tax.

Excluding bullion sales and the ₹290-crore inventory loss, normalized Ebit margin is still 270bps lower at 11.4%. In effect, Titan’s management has trimmed its consolidated jewellery Ebit margin guidance by 50bps to 11-11.5% for FY25. The management expects margins to recover in H2FY25, driven by a better mix and higher Caratlane margins.

In Q2, jewellery business profitability was hurt due to a slowdown in high-ticket solitaire purchases, as consumers preferred a wait-and-watch approach despite soft international prices. However, the non-solitaire and smaller-carat solitaire segments performed well. According to the management, purchases in the ₹1-2 lakh segment continued to grow at a healthy rate.

Put together, the share of studded jewellery in the mix fell to 30% in Q2FY25 from 33% a year ago. Analysts from Kotak Institutional Equities are cautious. “The current state of flux that is weighing on consumer sentiment for solitaires could gradually impact the non-solitaire segment as well (especially everyday jewellery)," they said in a report on 6 November, adding: “Broad-based availability of lab-grown diamonds jewellery could trigger natural diamond-to-LGD shift." Thus, the trends in the coming quarters