No points for guessing that the stock we are talking about is Titan, which runs four jewellery brands – Tanishq, Mia, Zoya and Caratlane. The Tata Group company also sells other lifestyle products but derives around 87% of its EBIT from jewellery business alone.
Riding high on the back of a structural shift in consumer preferences for standalone old-fashioned ‘sunaar’ to large branded retail jewellery chains, Titan shares have rallied around 801% ever since the first batch of gold bond was released.
From a market capitalisation of just about Rs 33,731 crore before November 30, 2015, it has now crossed the Rs 3 lakh crore milestone to become India’s 17th most valued stock.
On the other hand, gold bond investors had bought the first tranche of SGB at Rs 2,684 per gram. The price for the final redemption, which is happening today, has been fixed at Rs 6,132 per unit of SGB based on the simple average closing price of gold for the week November 20-24, 2023.
This translates into a neat capital gain of 128% or Rs 3,448 per unit. In CAGR (compounded annual growth rate) terms, the returns come out to be 10.88%.
SGB also comes with 2.5% per annum interest, paid twice in a year, during the 8-year-long holding period.While capital gains resulting from gold bonds are exempt from capital gains tax if held till maturity, the interest is taxable according to one’s slab.
Gold vs equity
While comparing gold’s return with that of stocks, one should also consider the risk factor. While equities offer the promise of higher returns in the long run, the risk too is equally high and investors may have to bear with long periods of lull or even negative returns.
On the other hand, gold is best seen as a hedging tool against economic uncertainties. The two asset classes have also displayed a negative correlation in the past, which means that typically when stocks fall, gold prices will go up. The vice versa is also true.
Most investors treat gold like a pickle in their thaali-style portfolios.
What about Titan?
Unlike most of its bluechip peers, Titan has had a strong 2023 with an upside of around 34%. While Titan’s management has guided for jewellery revenue to rise by 2.5x in 5 years, from FY22, implying a 20% CAGR and FY27 consolidated jewellery sales of Rs 61,200 crore, CLSA has forecast FY27 consolidated jewellery revenue of Rs 86,500 crore, 41% higher than company guidance.
“At 43x FY26, Titan trades at a 10% premium to our consumer coverage, however, we believe Titan can grow significantly faster over FY23-26CL and beyond as it makes further inroads into the rapidly growing luxury market as well as that for Indian jewellery overseas. Its core domestic business also has a long runway for growth and several of its new categories, which means investors should pay growth multiples for several more years,” said Aditya Soman of CLSA.
The foreign brokerage sees the stock rallying up to Rs 4,029.
In the September quarter, Titan registered strong double-digit revenue growth across divisions. Despite near-term headwinds of high inflation, the company is confident of maintaining good growth momentum in the quarters ahead, led by market share gains, network expansion, and a shift to trusted brands.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)