Titan slips on dull Q1 update; competition clouds loom

livemint.com:

elevated gold prices, up about 20% year-on-year, and their continued firmness have impacted consumer demand. This, along with a lower number of wedding days versus last year’s same quarter, curtailed growth this time around. In the near term, when Q1FY25 results are announced, jewellery margins will be in focus.

The jewellery business is Titan’s mainstay, accounting for 89% of FY24 total segment revenue. Investors would do well to lower their expectations from Titan’s margin performance, as increased competition is seen playing spoilsport in the near-to-medium term. Recently, the management has lowered jewellery Ebit (earnings before interest and tax) margin guidance to about 12%, from about 12.5% earlier.

As the jewellery sector becomes more organized, it remains to be seen how well Titan is able to defend its market share amid rising competition. Last week, Kotak Institutional Equities downgraded their rating on Titan stock to ‘reduce’ from ‘add.’ “We cut FY2025-27 estimated earnings per share by 5-6% (now 10-12% below consensus) as we factor in external headwinds: (1) competitive intensity that is likely to exacerbate with the launch of Aditya Birla Group’s Novel Jewels and (2) direct/indirect impact of lab grown diamonds on Tanishq’s studded (jewellery) growth and profitability," said the Kotak report. Against this backdrop, valuations don’t offer much comfort.