Titan Co. keeps brokerages divided on the stock's outlook after the jewellery maker reported a 23% decline in consolidated net profit in the second quarter, missing Street expectations.
However, all brokerages concur that Titan's jewellery revenue saw a sharp uptick this quarter, largely driven by a cut in gold customs duty from 15% to 6%. This policy change spurred consumer demand, helping Titan post 26% year-on-year growth in its jewellery segment. For Goldman Sachs, this growth was promising and supported by robust festive season sales.
Brokerages agree that a shift in Titan's product mix and the impact of a 9% customs duty cut on inventory negatively impacted its margins, resulting in a one-time loss of Rs 290 crore. Jefferies, Morgan Stanley, and Citi note that Titan’s adjusted jewellery EBIT margin declined by around 270 basis points to 11.4%.
While demand for regular studded jewellery showed growth, most brokerages noted a struggle in the higher-value solitaire segment. Lab-grown diamonds also appeared as a talking point, with Titan acknowledging that while the lab-grown stone segment is not yet impacting their broader diamond jewellery business, it has affected consumer behavior in the solitaire market, where value stability is crucial. Citi sees this shift as a potential pressure on margins if their popularity grows.
Although most brokerages are optimistic about Titan’s top-line growth, they differ on the pace. For instance, Goldman Sachs remains optimistic, assigning a "buy" rating with a target of Rs 3,650, banking on festive demand and strong wedding season sales in the second half of the year.
However, Jefferies and Citi remain cautious, retaining a "hold" and "neutral" stance, respectively, noting that urban consumption may moderate amid stiff competition, which could challenge Titan's revenue momentum.
Goldman Sachs and Morgan Stanley are somewhat optimistic about a margin recovery in the second half, projecting that Titan’s product mix improvement and reduced marketing expenditure might offset some margin pressure.
Jefferies and Citi remain skeptical, noting that rising competition and pricing pressure—especially from regional players discounting gold prices—could dampen any potential margin gains.
Citi and Morgan Stanley both flagged this competitive environment, pointing out that Titan may face a dilemma of choosing between margin expansion and growth.
Titan’s ongoing store expansion is seen as a positive, but it also adds operational pressure. Titan opened several new stores across its Tanishq, Mia, Zoya, and Caratlane brands in the second quarter. While this may boost future growth, Citi cautions that rapid expansion could put further strain on already thin margins.
The brokerages overall view Titan as a solid, long-term growth play in the jewellery segment, albeit with near-term challenges on the profitability front.
Titan Q2 Results: Key Highlights (Consolidated, YoY)
Revenue up 16% to Rs 14,534 crore. (Bloomberg estimate: Rs 13,425 crore).
Ebitda down 12% to Rs 1,236 crore. (Bloomberg estimate: Rs 1,566 crore).
Margin narrows 280 basis points to 8.5%. (Bloomberg estimate: 11.7%).
Net profit down 23% to Rs 704 crore (Bloomberg estimate: Rs 969 crore).