In 2022, Titan became the second Tata Group company, after Tata Consultancy Services (TCS), to achieve a market value of Rs. 2 lakh crore. As of September 8, 2024, Titan's market value has grown to Rs. 3,28,081 crore. Over 90% of Titan's stores are now operational, which is a good sign for the upcoming festive season.
 

Moreover, the combination of lower gold prices and a strong demand for gold is further expected to boost the company’s sales. This is quite evident in the fact that during the last month, Titan's stock price increased by 10%, whereas the BSE Sensex rose by only 4.5%. Clearly, this shows that Titan performed stronger than the broader market. But, why this rally?
 

In this article, let’s study some major factors that are contributing to Titan’s rapid growth. Also, we will see the fundamental strengths and weaknesses of the stock. 

• A fall in gold prices boosts Titan’s sales and profits. That’s because lower gold costs lead to increased jewellery purchases.
• A recent reduction in gold import duty has also benefitted the jewellery division of Titan.
• Titan has a high-profit growth of 59.28% and a strong revenue increase of 31.75%. 

Titan's share price is increasing due to strong demand across its jewellery and eyewear segments. Several analysts have maintained a positive outlook on the company’s growth potential. Even recent changes announced in Union Budget 2024 have reduced customs duty on gold which had a positive impact on the company’s jewellery division. All these factors combined are driving the stock upwards. For more clarity, let’s study them in detail:

Fall in gold prices

Firstly, understand that Titan's share price is somewhat related to gold prices. That’s because a large part of Titan's business comes from selling jewellery, which is heavily influenced by the prices of gold. Generally, when gold prices fall, customers buy more jewellery due to lower costs. This boosts Titan's sales and profits and positively impacts Titan’s share price.
 

Now, recently, the gold prices dropped to their lowest in two weeks. This happened because the US Federal Reserve cut interest rates by a smaller amount than some investors had hoped.
 

Reduced customs duty on gold imports

It is worth mentioning that Titan’s jewellery division contributes around 96% of the company’s total income. In the recent Union Budget, the government reduced customs duty on gold imports from 15% to 6%. This change is expected to benefit the jewellery division of Titan by lowering its costs.

However, in the short term, Titan may experience some losses due to the gold inventory bought at the higher duty rate. These short-term losses will likely be accounted for over the next two quarters, but overall, the reduced duty should strengthen Titan’s competitiveness in the market.

Considering the recent developments, even Titan’s management has set ambitious growth targets for its jewellery division. They are now aiming for sales to grow at a compound annual growth rate (CAGR) of 15-20% in the medium term.

Strong growth potential

Several analysts view Titan as a company with strong earnings growth potential. While Titan’s international business is still in its early stages, it shows promise, and if it grows faster than anticipated, it could boost the company’s earnings further.
 

Additionally, Titan’s strategy is also focused on attracting millennials. The company is planning to do so by offering new designs and using multiple sales channels. They are also looking to increase their share of the wedding jewellery market.

Moreover, in an interesting turnaround, Titan’s CaratLane, W&W (wearables), and eyewear divisions have shown profitability. If these divisions continue to perform well, they can significantly enhance Titan’s future growth.

Based on fundamental analysis, here are some key strengths of the company:

• Profit growth - 59.28%
  Titan has achieved a strong profit growth of 59.28% over the last three years. The company's earnings have increased significantly during this period.
• Revenue growth - 31.75%
  Over the past three years, Titan's revenue has grown by 31.75%. This steady increase in sales shows the company's expanding business operations and the growing demand for its products in the market.
• Return on Equity (ROE) - 27.93%
  Titan has maintained a healthy ROE of 27.93%. This shows that the company is effectively using its equity to grow its earnings.
• Promoter holding - 52.90%
  The promoters of Titan hold 52.90% of the company’s shares. A high promoter holding is generally seen as a positive sign, as it indicates the promoters' confidence in the company’s future growth.

Upon examination, we can also spot a few weaknesses in Titan's share price:

• High Price-to-Earnings (PE) Ratio - 92.37
  Titan’s PE ratio is 92.37. This means its stock price is 92.37 times its earnings per share. A few investors might feel that the stock is expensive compared to its actual earnings.
• High EV/EBITDA Ratio - 59.32
  Titan’s EV (Enterprise Value) /EBITDA ratio is 59.32. This shows that the stock is overpriced and the company may not be generating enough earnings relative to its value.