Titan's Stock Slips 3% After Q3 Results – Is It Still a Buy?

Titan's Stock Slips 3% After Q3 Results – Is It Still a Buy?

tan Company Limited, a prominent player in India's jewelry and watch industry, recently experienced a 3% decline in its share price following the announcement of its third-quarter (Q3) financial results. movement has garnered attention from investors and market analysts alike.

Financial Performance Overview**

In thquarter ending December 31, 2024, Titan reported a consolidated net profit of ₹1,040 crore, marking a 9.4% increase from the previous year. Howevthis figure fell short of market expectations, which had anticipated a profit of ₹1,094 crore. (busins-standard.com)

The company's total income for quarter rose by 26% year-on-year to ₹13,660 crore. Despite this growth, the profit margins were adversely affected by a significant inease in expenses. T total cost of materials consumed sged by 36%, primarily due to rising gold prices, a key raw material fitan's jewelry segment. (timesofindia.indiatimes.com)

Impact of Rising Gold Prices

The escalation in gold prices has been a double-edged sword for Titan.hile higher gold pres can enhance the perceived vae of jewelry, they also increase production costs. This quarter, the increased cost of gold contributed to a 22% rise in total expenses, reaching ₹11,85ore. Consequently, the earnings before interest and tax (EBIT) margin contracted to 11.3% from 12.5% in the same period last year. (timesofindia.indiatimes.com)

Segment-wise Performance

Titan's jewelry segment, which includes renowned brands Tanishq and CaratLane, achieved a 23% revenue growth, driven by robust festive season sales. In contr the watches and wearables division, encompassing brands such as Fastrack and Police, reported a 21% increase in revenue buted a 38% decline in profit. The eye care segment experienced a 3% decrease in revenue during the ter. (timesofindia.indiatimes.com)

Market Reaction and Analyst Insights

Following the release of the Q3 results, Titan's share price dned by up to 3%, closing at ₹3,133 on the trading day. Analysts have expressed concerns over the impact of rising gold prices on t company's profit mgins. Jefferies noted that while the quarter t muted expectations, the management's commentary on demand was reasonably positive. Howe a cut in jewelry margin guidance due to weak demand for solitaires was viewed negatively. Jefferies subsequently ced its earnings per share (EPS) estimates by 3-7% and maintained a 'Hold' rating with a target pef ₹3,400. (news18.com)

Goldman Sachs also lowered its FY25 EPS estimates by 8.7% to account for lower-than-expected margins and the full impact of a one-off loss in the jewey segment. The brokage adjusted its rget price to ₹3,650 from ₹3,750 but maintained a 'Buy' rating, citing potential for long-term growth. (news18.com)

StrateConsiderations for Investors

Investors are now faced with the decision of whether to hold, buy, or sell Titan's shares. The company's strong brapresence and diversified product portfolio provide a solid foundation for future growth. However, the volatility in gold prices and its direct impact on profit margins present challenges.

The management has acknowledged a one-time loss of ₹550 crore due to the reduction in import duties, with ₹290 crore accounted for in Q2 FY25. This loss stems from Titan's hedging strategy, where approximately 40% of its gold inventory is hedged through gold leases from banks, which do not cover changes in import duty structures. (news18.com)

Conclusion

Titan's recent financial performance underscores the complexities of operating in a market influenced by fluctuating commodity prices. While the company has demonstrated resilience through revenue growth, the pressure on profit margins due to rising gold costs cannot be overlooked. Investors should closely monitor Titan's strategic responses to these challenges and consider their risk tolerance when making investment decisions.

Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial advice. Investors are advised to conduct their own research and consult with a certified financial advisor before making investment decisions.