Titan's near-term margin headwinds on watch

There could be near-term margin pressures for lifestyle accessories major Titan Company.

Even as the company maintains its growth outlook over the medium term, it has revised its margin guidance for the jewellery segment downwards.

The company has adjusted its medium-term margin guidance to 12 per cent from the previous range of 12-13 per cent.

The company, which closed 2023-24 (FY24) with a margin of 10.6 per cent, has indicated near-term pressure on margins due to the rise in competitive intensity and an increase in gold prices.

In addition to these factors, profitability in its core jewellery business will be affected by investments required for expansion, coupled with demand volatility and changes in the product mix.

Prabhudas Lilladher Research has lowered its earnings per share estimates for 2024-25 (FY25) and 2025-26 by 12.5 per cent and 9.9 per cent, respectively, due to the revised segment margin guidance.

Analysts at the brokerage, led by Amnish Aggarwal, expect the performance in the first half of FY25 to remain tepid due to higher gold prices and a weak marriage season, with a strong recovery in the second half.

The brokerage expects returns to be back-ended and advises accumulation at lower levels for medium-term gains.

To offset the margin pressures, the company is focusing on sourcing, pricing, introducing new products/innovations, and improving operating efficiencies.

Analysts at Antique Stock Broking, led by Abhijeet Kundu, expect Titan to maintain its long-term jewellery segment margin at 12 per cent, driven by product/design/material re-engineering, sourcing efficiencies, and cost control measures.

The brokerage, which has a ‘buy’ rating, is optimistic about Titan’s long-term performance driven by market share gains in the jewellery business, scaling up, and improving profitability in other businesses.

Despite facing multiple headwinds over the past five years, the jewellery business has grown at a robust 19 per cent annually, helping the company outperform the sector and increase its market share by 350 basis points to 8 per cent by the end of FY24.

The company aims to increase this to 10-11 per cent by 2026-27 through network expansion, leveraging its portfolio of brands such as Tanishq, Mia, Carat­Lane, and Zoya, and utilising its design and execution capabilities.

The company remains bullish on the growth prospects across segments over the medium term.

It has guided for 15-20 per cent growth for the core business and 30-40 per cent for emerging business segments such as wearables, Taneira, international business, and fragrance, among others.

Looking ahead, the company aims for margins in the watch segment to be in the range of 12-14 per cent, while for the eyewear segment, the target is 11-13 per cent.

These goals indicate an improvement in margins for these two segments, considering that profitability for watches and wearables for FY24 was at 10 per cent, and for eyewear was at 11 per cent.

While Motilal Oswal Research also maintains a ‘buy’ rating on the stock, analysts at the brokerage find its valuation expensive.

However, analysts, led by Naveen Trivedi, point out that its superior competitive positioning (sourcing, studded ratio, consumer trust, youth-centric approach, reinvestment, among others) and business moats are not easily replicable.

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