Titan doesn’t see full recovery from COVID-19 crisis until early 2021⁠— and now gold prices threaten to squeeze profit

• International gold prices are up over a percent in the last three months, and it is a key ingredient for Titan’s jewellery business, which contributes 85% to the revenue
• More than 1400 stores out of 1800 Titan stores are already open and saw a 70% recovery rate in the last 5 weeks.
• The company said it had an impact on its sales as the government encouraged people to avoid weddings and large gatherings.

Titan managed to cut costs sharply and clock a 21% growth for the Jan-March 2020 quarter but that may not hold the country’s top fashion accessories maker in good stead for too long. Full recovery from the COVID-19 crisis is unlikely till the fourth quarter of this year i.e. Jan-March 2021 and, in the meantime, rising gold prices threaten to push up cost further.

International gold prices are up over a percent in the last three months, and it is a key ingredient for Titan’s jewellery business, which contributes 85% to the revenue.

Titan’s share price declined over a per cent as the management cautious guidance clouded over the sentiment.

More than 1400 stores out of 1800 Titan stores are already open and saw a 70% recovery rate in the last 5 weeks, the company said. However, It did accept the grim reality of the coronavirus impact on the business and said that it will reduce the number of new stores it opens this year.

“Indian jewellery demand has a positive correlation with real GDP growth,” said the Goldman Sachs report dated April 22. The research firm forecasts Indian GDP to grow at -0.4%, indicating Titan’s sales will remain muted for at least next two years.

Another global financial services firm UBS listed out four specific problems that led to the cut in earnings estimates⁠— by as much as 23.7% for the current financial year⁠— earlier this month.

• High gold prices (up 50% YoY), reduced discretionary sales and potential postponements of occasion-based buying.

• Slower store expansion as near-term business investment slows.

• A pause in the formalisation trend of gold jewellery in the near term, as the informal sector begins severe discounting.

SEE ALSO: Without weddings and fewer Indians in a celebratory mood, Titan’s sales to remain muted for the next 2 years

Titan tightens cost enough to clock a 21% growth in profit⁠— the best in five quarters