Titan is actively working to boost its jewellery business margins, aiming to recover from the impact of higher gold prices, the Tata group company’s management said in a post-earnings call on May 3.
The jewellery business accounts for 88 percent of the total income of the company. The segment reported a 12.1 percent EBIT (earnings before interest and taxes) margin in Q4 FY24, declining 110 bps. There was a drop of around 140 bps in terms of EBIT margin for the full year.
“I am not anticipating the margins to go up quickly because we are going to take our time to respond to the elevated gold rates that is there. I am hoping that from quarter 2 onwards we will start seeing some improvements,” said Ajoy Chawla, CEO, Tanishq division.
Read more: Titan Q4 results: Net profit rises 7% to Rs 786 crore, firm declares Rs 11 dividend
Last year, the company experienced some one-time gains due to inventory increases in diamonds and customs duty benefits.
This year, however, the segment’s gross margin in the current quarter has been lower than usual due to various factors. One reason is the customer offers and competitive pressure in the market, driven by a relatively soft consumer sentiment and business environment, the management noted in the post-earnings call.
Despite these challenges, the company remained committed to achieving the target of 20 percent growth and have responded with appropriate promotions to maintain competitiveness. The current period also sees heightened competitive pressure due to the soft business environment caused by elevated gold prices.
“Competitive intensity will continue and we will continue to invest in growth and respond accordingly in the marketplace to ensure that we continue to gain market share,” said Chawla.
The management also noted that when gold prices experience sudden and substantial increases, it affects the material cost of studded jewelry, which comprises both diamond and gold costs. “If gold prices rise significantly and rapidly compared to diamond costs, it creates a differential impact on the gross margin.” said Chawla.
This temporary effect requires the company to make fundamental adjustments in product engineering, design, sourcing methods, and other areas over the following months to restore the gross margin.
The management noted that they have consistently prioritized aggressive growth over margins, and are prepared to accept margin reductions when necessary to achieve this growth. Despite this approach, the company has maintained a healthy EBIT margin of 12.3 percent for the year, which aligns with the expectation of maintaining EBIT margins between 12 percent to 13 percent.
“Looking ahead, we anticipate maintaining this view over the next 12 to 24 months, unless unforeseen circumstances arise.” the management noted.
Titan Company on May 3 reported a standalone net profit of Rs 786 crore for the March quarter, a growth of seven percent from Rs 734 crore in the year-ago period.
The jeweller and watchmaker's revenue came in at Rs 10,047 crore, rising 17 percent from Rs 8,553 crore in the year-ago quarter, the company said in a regulatory filing.
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