Investors with a one-to-two-year time horizon can buy the stock of Titan Company. The stock is down over 20 per cent in the past month, owing to the rally in gold prices impacting demand for jewellery. However, Indian gold demand is not really price-sensitive, and a sustained rally in prices often draw consumers back to buy the metal during festivals and weddings. Titan’s sluggish sales numbers for the June quarter should not worry long-term investors.

Also, given Titan’s strong brand and its dominant position in the market, it should stand to benefit when demand revives.

At the current market price of ₹1,067, the stock discounts its trailing earnings of one year by 65 times. The three-year average PE is 68 times. On expected earnings for 2019-20, the stock trades at 51 times.

Gold prices may stay elevated and even rally further, given the global uncertainty.

With the RBI’s recent rate cut, the rupee may also lose some value against the greenback and drive Indian gold prices higher in the coming weeks. But long-term investors should not be rattled by short-term volatility in prices. Any further correction in the stock should be seen as an opportunity to accumulate.

Demand not so bleak

Titan’s stock has been correcting since it reported its pre-quarterly update (for the April-June period) to the exchanges in July.

Against its guidance for a 22 per cent growth in jewellery sales for 2019-20, the company reported sales growth of only 13 per cent in jewellery in the first quarter of 2019-20.

The second half of the year is likely to be better and may see over 20 per cent growth, says the company.

Even during past upcycles for gold, the pent-up demand had come back into the market after 1-2 quarters.

And in India, given that a chunk of the gold-buying happens during weddings and festivals, demand is not completely price-sensitive.

The other segments of the company — watches and eyewear — however, did well in the June quarter. The watches segment grew 20.4 per cent, thanks to a large institutional order. The company's eyewear business grew 13.1 per cent Y-o-Y.

Caratlane, Titan’s subsidiary company, too, did well. It recorded revenue growth of 60 per cent in the June quarter, helped by growth in both offline and online channels.

The offline channel reported better growth rate due to network expansion

Overall, for the April-June quarter, the company’s sales (on a consolidated basis) was up 16 per cent, Y-o-Y, to ₹515 crore.

The company added (net) a total of 45 stores across businesses. The total number of stores as of June quarter was 1,640.

Aggressive store expansions can aid market share gains, propelling growth.

Margin picture

At the operating level, the profit margin for the June quarter was 11.1 per cent, a tad higher than the 10.8 per cent in the same quarter last year.

However, if we look at segments separately, the picture is not as comforting in the recent quarters. In the jewellery business, the EBIT margin was 10.9 per cent versus the 12.8 per cent in the March 2019 quarter and 13.3 per cent in the December 2018 quarter.

If sales volumes inch up in the second half of the year, the margins may, look up again. In the June quarter, the sales volume in jewellery was up just 6 per cent. In the March 2019 quarter, volume growth was 15 per cent.

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