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Titan Gets a Shine with Robust Growth in Gold Business

Titan Gets a Shine with Robust Growth in Gold BusinessGold Silver Reports — Titan Gets a Shine with Robust Growth in Gold Business — Tanishq has proved to be the jewel in Titan’s crown, literally. The company which derives most of its profits from jewellery business has given 15% revenue guidance for FY17 amid a de-growth in the industry, gover nment’s crackdown on black money and mandatory PAN requirement for purchases above a threshold. 

Reasons for the robust growth are customers shifting to branded space, schemes aimed at drawing more footfalls and rise in the gold prices. “Customer sentiment where we operate has improved. Tanishq brand has become stronger in the public eye. We expect a higher demand during the current festive season and also in the coming quarters,“ said Tanishq CEO CK Venkataraman.

In addition, lower gold import has not affected the company’s operations much since customers tend to exchange old jewellery for the new, according to the management. This practice reduces the cost of gold procurement, thereby supporting profitability.

The regulatory requirement to disclose the PAN number for purchases above Rs 2 lakh is also helping. “If customers have to declare their gold purchase they prefer to go to a branded player.We launched a collection called Queen of Hearts recently to target this demand. We are seeing a lot of new customer acquisition there,“ said Venkataraman. Another factor which will start reflecting in numbers from the September quarter is the Golden Harvest Scheme, which was introduced last year. Under the scheme, one needs to pay a fixed amount every month for 10 months to avail a special discount on the product purchased. According to Venkataraman, the scheme picked up momentum in the second half of FY16.

Titan showed a 12.3% year-onyear growth in profit from the jewellery business. Operating margin improved by 78 basis points to 9.5%. This is despite the fact that wedding dates in the first half of 2016 were few.Adjusted net profit grew by 25%.Titan also has other businesses -watches and eyewear -but the size of these businesses may not influence the overall financial performance as much.

Titan’s stock has gained 12.5% so far in 2016, only marginally outperforming Nifty. At Thursday’s closing price of Rs 398, the stock trades at 51 times trailing earnings. The stock has commanded premium valuation given its strong business model. With improving sales and higher customer acquisition, the operating leverage can be significant in the coming quarters, which is likely to keep the stock buoyant.

Stand-out stocks and stand-out companies seldom get noticed in troubled times. ET delves into financial performance of India Inc every week to identify stocks and companies that have bucked the trend to emerge stronger.This week, we present Titan.  — Neal Bhai Reports

Titan Gets a Shine with Robust Growth in Gold Business

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