Titan Company Ltd’s pre-quarter update for the three months ended December (Q3FY23), released in early January, had indicated that sales growth across all segments was healthy. Thus, the investor focus was on profitability when it announced third-quarter financial results on Thursday.
Standalone EBITDA (earnings before interest, tax, depreciation and amortization) margin contracted by 247 basis points (bps) year-on-year (YoY) to 12.2%. One basis point is 0.01%. Thus, Titan’s Ebitda fell by about 5% year-over-year. 1,330 crore, missed analysts’ expectations. This comes at a time when total operating revenue has grown by 14 per cent year-on-year.
View Full Image
The company said that in the core jewelery business, which accounts for a major chunk of Titan’s revenue, there has been a steady improvement in the average ticket size. Also, higher value purchases contributed to the overall pie. Yet analysts say the Ebit margin of the jewelery business has disappointed. While margins, excluding bullion sales, were projected to decline from a high of 15.3% in Q2, they fell slightly more than expected.
According to Titan’s investor presentation, jewelery Ebit margin declined 170 bps year-on-year to 13%. “Ebit margins were soft in the jewelery business and marginally lower in the watches business in the third quarter,” said Amnish Agarwal, head of research at Prabhudas Lilladher. Watches’ Ebit margin fell nearly 60 bps to 11%.
Titan expects jewelery EBIT margin to be in the range of 12-13%. It’s not very exciting. The base for the current March quarter (Q4FY23) is favorable, which should support the growth numbers. Last year’s March quarter was hurt by the impact of the Omicron Covid wave, volatility in gold prices and the fragile geopolitical situation. Now it helps that Titan’s commentary on January demand is encouraging. Despite the rise in gold prices, this month is witnessing good demand for jewellery. In the last two months, Titan has seen more impact of volatility in gold prices. However, the reason for better sales this month could also be the wedding season.
Investors should watch whether higher gold prices impact near-term demand. As such, 2023 has begun on a gloomy note for the stock, which has fallen 11% so far. Despite this, valuations are expensive. Bloomberg data shows that the stock is trading at around 52 times FY24 estimated earnings. In the long run, the company is expected to see an increase in market share. For now, investors seem to be seizing on the bright picture enough.
Know your inner investor
Do you have guts of steel or are you a victim of insomnia regarding your investments? Let’s define your investment approach.
catch all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.