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Little wonder, shares of Titan rose by 5.3% on Friday, when the benchmark Nifty 50 index was marginally down. Investors seemed to be excited about Q2’s growth in the jewellery business despite a high base. Recall that jewellery revenues had grown by 77% y-o-y in the September quarter last year, benefitting from some pent-up demand and spillover purchases of a covid-impacted Q1FY22.
As such, the three-year compound annual growth rate in Q2FY23 is 27%. Now all eyes will be on Titan’s Q2 margin. Here, one factor that would play in favour of the company is the faster growth in studded sales versus gold jewellery. The increasing share of the former will support margins. In Q1, studded jewellery’s share was at 26%. Kotak estimates the share to be at 34% in Q2. While the product mix is improving, it is still below pre-covid levels. In Q2FY20, the share of studded jewellery was 38%. Meanwhile, Titan’s watch business grew 20% y-o-y, while the eyecare business witnessed 7% growth. For the overall standalone business, the company added 91 stores in the quarter, taking the total count to 2,251. Shares of Titan are hovering near their 52-week highs of ₹2,768 apiece seen in March. Any drop in jewellery demand because of the rise in gold prices should throw cold water on investors’ hopes. This may lead to a drop in Titan’s high valuation multiples. The company’s shares now trade at nearly 64 times estimated earnings for FY24, Bloomberg data showed. “Valuations are pricey, but this is also the case for some other quality consumer discretionary companies," said an analyst requesting anonymity. Even so, expensive valuations could limit significant near-term upsides.
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