Titan has underperformed since Q2 FY14, which painted a weak picture of demand outlook for jewellery. Our recent interaction with jewellery stores and management corroborates that festive demand in Q3 has been very weak, even after discounting the fact that coins sales were absent this festive season (about 15% of total jewellery sales in the festive season). This picture does not bode well for the revenue and the profit growth in the short term. Regulatory uncertainty too remains a key dampener as well.
Notably, there is no progress till date on RBI giving Titan permission to hedge gold price risk globally. Titan so far has not made any progress to arrange for its own exports of jewellery to meet part obligations for 80:20 rule, that may have enabled Titan to import gold using its direct import license. Further, the Companies Act (2013) brings jewellery schemes under its purview and will mean additional resources be spent in managing the scheme, but all the schemes will still be able to function. Near-term visibility of revival remains quite bleak. Weak demand in Q3 is likely to prevail in Q4 as well, while Q1FY15 will have a very high base from last year and regulatory situation too remains uncertain.