mumbai
: Titan Co. Ltd’s jewelery business revenue rose 26% annually (excluding gold bar sales) in the September quarter (Q2FY25), helped by a reduction in tariffs from 15% to 6%. But at the same time, lower tariffs and a weaker product mix led to inventory losses, dragging down profit margins.
In the second quarter, reported independent jewelry industry EBIT margins fell by as much as 540 basis points (bps) annually to 8.7%. Earnings before interest and taxes (Ebit) is the abbreviation for earnings before interest and taxes.
Excludes gold bar sales and $Inventory losses were Rs 2.9 billion and normalized EBIT margin remained 270 basis points lower at 11.4%. In fact, Titan’s management has lowered its fiscal 2025 consolidated jewelry EBIT margin guidance by 50 basis points to 11-11.5%.
Management expects margins to recover in the second half of fiscal 2025, driven by better mix and higher Caratlane margins.
The profitability of the jewelry business was hurt in the second quarter as purchases of high-priced single diamonds slowed as consumers tended to wait and see despite weak international prices. However, the non-solo and small carat solitaire segments performed well.
According to management, procurement $The 1-2 lakh segment continues to grow at a healthy pace. All told, studded jewelry’s share of the mix fell to 30% in Q2FY25 from 33% a year ago.
Analysts advise caution
Institutional equity analysts at Kotak are cautious. “The current state of change is affecting consumer confidence in solitaire jewelry and may also gradually affect the non-solo diamond jewelry segment (especially everyday jewelry),” they said in a report on November 6, adding: “The widespread availability of laboratory-grown diamond jewelry may trigger a shift from natural diamonds to LGD.”
Therefore, trends in the coming quarters will be critical in determining whether they will have a meaningful impact on future growth and profit trajectories.
To be sure, the overall studded segment grew 12% year-over-year in Q2FY25, while the gold segment (including coins) grew about 30%.
Watches and wearables are Titan’s next key business, with second-quarter EBIT margin at 14.9%, up 26 basis points year over year, as the company continues to capitalize on the ongoing premiumization trend with its analog watches. Revenue from this business grew by 19%, with the analog watch business growing faster, reaching 26%. However, the growth in the business was not enough to boost Titan’s overall profits in the second quarter of fiscal 2025, as the segment accounted for a smaller share of the company’s revenue and profits.
Following the announcement of its second-quarter results, Jefferies India has cut its FY25-FY27 earnings per share forecast by 3-7%, mainly due to lower margin guidance. A Nov. 5 report from Jefferies said that “concerns about slowing urban consumer trends, increased competition in the jewelry industry and a weak product mix (partly due to lab-grown diamonds) are likely to keep the stock price range-bound.”
Titan has been facing competitive pressure from existing companies as well as new players such as Aditya Birla Group entering the jewelry industry. Against this backdrop, Titan shares have fallen around 13% so far in 2024, lagging the Nifty50 index’s 13% gain. Despite the underperformance, valuations are no comfort. The stock trades at nearly 58 times estimated fiscal 2026 earnings Bloomberg data.
From a near-term perspective, management expects another $Inventory loss in the third quarter was Rs 280 crore. However, demand is expected to be strong during the festive and wedding season in the second half of FY25. Overall, fee discount pressure and massive store expansion plans are likely to limit margins. This, in turn, could adversely affect investor sentiment.
For more analysis like this, read Mark to market.
