'Gold Customs duty cut had impact of Rs 290 crore': Titan's profit falls 25% in July-Sept quarter

Titan Company, a Tata Group-managed manufacturer and retailer of lifestyle products, highlighted that the reduction in customs duty on gold had a significant impact of Rs 290 crore during the July-September quarter. "The customs duty reduction saw a revival in consumer interest as gold prices cooled off temporarily. The ensuing gold rush lasted well into mid-September," Titan said in its Q2 result statement.

Union Finance Minister Nirmala Sitharaman proposed a decrease in Customs duty on gold from 15% to 6% in the Union Budget 2024. When Customs duty is lowered, companies with inventory purchased at higher duty rates may incur losses due to the disparity between the cost of existing inventory and new market prices.

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Titan Company Ltd reported a 25% decline in net profit year-on-year, totaling Rs 705 crore for the second quarter ending on September 30, 2024. In comparison, the company had posted a net profit of Rs 940 crore in the same quarter of the previous fiscal year. EBITDA decreased by 16.4% to Rs 1,133 crore in the current quarter from Rs 1,355 crore in the previous fiscal period, resulting in an EBITDA margin of 8.6% in the reporting quarter compared to 11.6% in the corresponding period of the previous fiscal year.

Titan's inventory levels were affected by the reduction in import taxes, resulting in a decrease in the average value of its stock for the quarter. Additionally, the company had to sell its existing inventory at the decreased market prices following the tax cut.

During the second quarter of the fiscal year 2025, the domestic jewellery segment experienced a notable resurgence, with revenue reaching Rs 10,568 crore, representing a robust year-on-year growth of approximately 25%. This achievement came after a sluggish performance in the previous quarter. The surge in demand was primarily fueled by a reduction in custom duties, which remained in effect until mid-September. As a result, buyer growth saw a significant uptick of around 12%, accompanied by a 10% increase in average selling price compared to the previous year.

In the latest quarter, the gold segment, which includes coins, experienced a 30% year-over-year growth, while the studded category saw a 12% increase. The segment's like-to-like growth was 15% for the quarter, impacted by custom duty reductions affecting customer realizations by Rs 290 crore. Adjusting for this, the EBIT reached Rs 1,222 crore with a margin of 11.4%. Tanishq added 11 stores, Mia added 12, and Zoya added one during the quarter.

CaratLane also had a strong quarter, with total income rising 27.9% year-over-year to Rs 829 crore. Revenue from the studded category grew by 41%, increasing its share by approximately 7 percentage points to 79% of total sales. New customer acquisition growth was driven by activations in July and August 2024, with a 21% increase and a 30% rise in brand searches. CaratLane's EBIT reached Rs 58 crore, representing a 7.0% margin. The brand expanded by 11 new stores, bringing the total to 286 across 119 cities in India.

In the Watches & Wearables segment, domestic revenue experienced a solid 19% Year-over-Year growth, primarily driven by a significant 26% increase in the analog watches segment. The Titan brand notably achieved a remarkable 32% growth, attributed to strong volume growth. Additionally, Sonata and Fastrack also reported healthy gains, with around 20% and 18% Year-over-Year growth, respectively.

During an interview with CNBC TV18 in August, Ashok Sonthalia, CFO of Titan Company, mentioned that the company anticipates an inventory loss of Rs 500-550 crore due to the recent reduction in Customs duty on gold. Sonthalia clarified that this impact is a result of selling inventory that had higher Customs duties paid previously, which will impact the company's financial statements in the upcoming quarters.

Despite this challenge, Sonthalia noted that the decrease in gold prices has led to an increase in demand for gold jewellery.