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ICICI Securities Report
In this report, we analyse data of past 15 years to decode how Titan Company Ltd.'s jewellery business is intertwined with the fluctuations of gold commodity prices. Read on for our TEN commandments of Titan and Gold. Key observations:
A secular rise in gold price brings more tailwinds (1% rise in gold price leads to 2% increase in Ebit than headwinds, as: demand for wedding jewellery is relatively inelastic in value terms; making charges paid by Titan consumers are linked to gold price; and Titan hedges its gold price exposure completely.
Rise in gold price has negative correlation (-0.8) with volume per store of Tanishq; however, the impact on volume is offset by higher realisation, as making charges are linked to gold price.
High volatility in gold price (versus secular increase) has negative impact on consumer demand, as customers prefer to postpone buying in expectations of lower price.
Gold price inflation led to higher competitive intensity driven by inventory gains by organised/unorganised players, which has a lower proportion of hedges (versus 100% hedge at Titan).
Key risks: Increased gold price volatility, and higher-than-expected rise in competitive intensity in jewellery.
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