Titan loses shine as rising gold price plays spoilsport

livemint.com:

₹8,998 crore. However, while the average selling price saw single-digit increase, new customer acquisitions made up just about 54% of jewellery customers. Titan had to ramp up promotional spending and discounts to attract buyers amid sluggish demand, rising competition, and fluctuating gold prices, which weighed on its margins.

Consequently, jewellery Ebit (earnings before interest and taxes) margin declined 110 basis points to 12.1%, marking the fourth consecutive quarter of year-on-year contraction in jewelry Ebit margins, according to Titan's earnings presentation. Its management expects operational headwinds to persist for at least two more quarters. “I am not anticipating it (margins) to go up quickly.

We will take our time to respond to elevated gold rates. I am hoping that from Q2 onwards we will start seeing some improvements, given that some of these efforts may take time...," Ajoy Chawla, the chief executive of the jewellery business, said during the post-earnings call. Gold prices surged around 8% in Q4.

The upward trend persisted in April, with the yellow metal breaching the ₹70,000 per 10gm mark for the first time. According to Titan's management, both organized and unorganized players are on an expansion spree. The highly-fragmented unorganized sector accounts for around two-thirds of the Indian jewellery market.

Apart from gold, Titan also faces an emerging threat: lab-grown diamonds. The management acknowledged the rapid growth of lab-grown diamonds in the US market, but said that it is still premature to evaluate the impact on its business. Studded jewellery constitutes 33% of Titan’s jewellery vertical.