Titan Industries watch and other industry watches companies

The watch business contributes close to 20% of the total profit vis-à-vis the jewellery business which contributes 77% to its profit. The key issue is the volatility in gold prices which is a big deterrent to customers. In the recent quarter, the jewellery business showed a 5% dip in volumes or grammage sold, though business grew by 25% year-on-year due to higher gold prices. The company experienced a sudden pick-up in jewellery buying in December compared to October and November last year.

The main reason for this was the correction of gold prices in the last two weeks of December. However, gold prices have risen again by over 10% since December which could discourage customers from purchasing gold and gold jewellery.

To offset this, the focus of the company would be on studded jewellery which contributed 26% in the December quarter. Apart from these issues, operationally, the company has done well. Its expansion plans are well on track. The company has added 2 lakh square feet, or 25%, of the total floor space in the first nine months of the current fiscal and has set a similar space addition target for the next fiscal.

Titan Industries Ltd (updated - 02 Feb 2012)
High and volatile gold prices and rising input costs for the watch business dragged down Titan Industries, which reported dismal results in the quarter to December 2011.

The trend in the fourth quarter is expected to slightly improve, but it needs to be seen how quickly sales from addition in floor space will start reflecting in the company’s earnings.

For Titan, input costs were high because of the weakening of the rupee in the December quarter. The company out sources a major part of watch manufacturing to China. Though Titan had raised prices of its watch products in the previous quarter, its full impact will be seen only from the fourth quarter.

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The new space is expected to generate sales per square feet of up to 50% of the existing floor space in the first year and 75% in the second year.

And this expansion is through the franchisee model which doesn’t require the company to invest any of its own capital. This will contribute handsomely to the company’s overall earnings in the coming years.

The current drop in sales could be temporary. Titan Industries still remains one of the best plays in the Indian consumer market.

It is doing fairly well in its new ventures - eye wear, bags and leather accessories - and the correction in the company’s stock price provides a better entry point for investors.
Source - Economic Times