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India's Tata Group-owned Titan Co reported a lower-than-expected quarterly profit on Wednesday as its mainstay jewellery segment was hurt due to surging gold prices, which pushed up costs and eroded margins.

Titan, which owns the Tanishq jewellery brand, said its first-quarter profit fell more than 2% to 7.77 billion rupees ($94.1 million) in the three months ended June 30.

Analysts had expected profit of 9.50 billion rupees, as per Refinitiv data.

Gold prices in India - the second-biggest gold consumer in the world - hit record highs during the quarter, dampening demand and exacerbating Titan's spending on raw materials, which surged nearly 48% from a year ago.

The jewellery division accounts for 89% of Titan's total sales.

Expenses climbed about 29%, outweighing a nearly 19% jump in sales to 101.03 billion rupees.

This led to margins on earnings before interest and taxes (EBIT) contracting to 10.7% in the April-June quarter from 13% a year ago.

"Margins may have fallen because the company had aggressive exchange offers during the quarter, price cuts to try and gain market share, and a focus on bigger revenue from the South Indian market, which is a low margin business," Centrum research associate Soham Samanta said.

Sales grew as people purchased more gold in April to celebrate the annual Akshaya Tritiya festival, when buying the yellow metal is considered auspicious.

The World Gold Council has cautioned, however, that demand in 2023 could fall 10% from a year ago to their lowest in three years, as record high prices continue to curb retail purchases

Smaller rival Tribhovandas Bhimji Zaveri posted a five-fold jump in profit on Tuesday, but revenue fell for the first time in 10 quarters.

Shares of Titan had risen 21.2% in April-June, outpacing a 10.5% increase in the benchmark Nifty 50 index.