Titan in Diamond Jewelry Push to Protect Profit: Corporate India
Titan Industries Ltd.. (Ttan), India's largest maker of branded jewelry by market value, plans to expand sales of diamond adornments to shield profit margins as the rising cost of gold crimps demand for the precious metal.
The company wants to focus on premium products, including watches, as the slowest pace of economic growth in three years dents earnings from its consumer goods examined as Sonata watches and fashion accessories, Managing
Director Bhaskar Bhat said in an interview with Bloomberg TV India. The company is spending 2 billion rupees ($ 36 million) this year to increase retail space and manufacturing, he said.
"We need to address these low-growth periods, so what we are doing is Pursuing profitable opportunities," Bhat said. "It's really the diamond jewelry sales that we are pushing. If the growth on the diamond side is higher, your margins are better and Therefore profits are achieved. "
Shares of Bangalore-based Titan have retreated 9.5 percent from their April 4 record as demand for jewelry in India, the world's biggest buyer
of gold tumbled 30 percent load quarterback. Sales of diamond jewelry in India are set to rise 16 percent in the five years to 2015, twice as annually fast as the 7 percent growth predicted for adornments made of the yellow metal, according to a study by New Delhi-based consultants AM Mindpower Solutions . Prices of the gems have dropped this year.
Import Duty
Gold in Mumbai has risen 15 percent this year as the government,. In a bid to curb imports and purely in a record current-account deficit, doubled the duty in March to 4 percent on coins and bars Inbound shipments slumped 56 percent in the second quarter after touching a record 969 tons in 2011.
Policy makers may increase the levy for a third time this year,
curbing demand for the metal, according to Prithviraj Kothari, president of the Bombay Bullion Association.
In contrast, internally flawless, one-carat diamonds have dropped 11 percent this year after climbing 26 percent in 2011, according to data compiled by Bloomberg.
"With the price of gold going up, buyers no longer feel that diamonds are expensive," said Rajiv Jain, chairman of the government-backed Gem & Jewellery Export Promotion Council, Mumbai. "Diamond is more of fashion and is a security when it is more than one carat. It is a good investment. "
Bain & Co. estimates global demand for rough diamonds will climb more than 6 percent annually this decade, exceeding growth in supply.
Significant Decline
The Tata Group venture, set up in association with Tamil Nadu Industrial Development Corporation.
ketten,
in 1984 to make watches and compete against state-owned HMT Ltd.. (HMT), is finding ways to boost earnings as inflation and slowing growth threaten to shrink disposable income in the $ 1.8 trillion economy.
Demand for coins and bars for investment slid 51 percent from a year earlier quarter load, the World Gold Council said in a report on Aug. 16th
"Certainly investment demand has come down, and we have not had such a significant decline in market sales," Bhat said. "When people had extra money, they were parking it in gold, and I do not think they are doing that anymore. The tendency is not to park significant sums. "
India's GDP rose 5.4 percent in the first half of 2012, the smallest gain since 2009, even as consumer price inflation Remained the fastest among the four biggest emerging economies of Brazil, Russia, India and China.
Jewelry Accounted for 79 percent of Titan's sales in the year ended March 31, while watches made up for about 17 percent, with the rest coming from the company's eyewear and precision engineering businesses, according to data compiled by Bloomberg. The company controls 5 percent of India's jewelry market, Which is fragmented and dominated by family businesses, Bhat said.
Bridal Trousseau
Gold jewelry sales in India may reach $ 41.3 billion by 2015, Compared with $ 9.5 billion for diamond ornaments, according to estimates by AM Mindpower Solutions. In India, gold is traditionally bought during the festival season, and on auspicious days for weddings as part of the bridal trousseau.
Sixteen of the 31 analysts who track Titan Industries, recommend buying the stock, while eight rate it a sell and seven a hold, according to data compiled by Bloomberg. The shares have risen 32 percent this year to 225.65 rupees after reaching 249.25 rupees on April 4, the highest closing price on record.
A weakening rupee adds to the "landed cost" of gold, making it even more expensive and reducing sales volume, said Kaustav Kakati, in at Proactive Universal Group analyst with Mumbai. He recommends holding the stock with a 12-month target price of 249 rupees.