Shares of Titan Industries Ltd (TIL) continue to be under pressure after more than three hours of trading.

After hitting a fresh 52-week low, the stock made a feeble recovery from the earlier low, as RBI toughened its stand making importers of gold to fork out 100 per cent cash margin for their gold import.

The stock, which had lost about 10 per cent yesterday, shed 11.95 per cent or Rs 28.35 to trade at Rs 208.85 on the NSE around 1 pm. The counter witnessed a colossal trading volume of 2.07 crore shares indicating large-scale short-covering in the counter.

What probably added to the investor nervousness was the widespread downgrade of the stock by analysts and comments from a senior company executive that the RBI notification would have an impact on its profit before tax (PBT).

100% cash margin

Titan had stated yesterday that in its discussions with the RBI officials, it was clarified that any import of gold for domestic use whether through banks or nominated agencies or directly could be done only with 100 per cent cash margin.

The apex bank has also banned the credit of any kind from suppliers or bullion banks for import of gold and has extended the same to import of gold through all non-consignment routes like gold on lease/loan. RBI was insistent that the notification should be followed “in letter and spirit’’, TIL had said.

Fresh 52-week low

The stock fell to a fresh 52-week low of Rs 207.15 in the opening minutes of trade before recovering to Rs 221.15.

But it was not able to hold on to the levels and tested a fresh 52-week low of Rs 202.20 before making a mild recovery at Rs 208.85, a loss of Rs 28.35 or 11.95 per cent. In effect, the stock has lost nearly 25 per cent in just one-and-half trading sessions.

The pressure on the stock could be because of downgrade of the stock by several brokerages. In fact, one analyst expected the stock to seek still lower levels of Rs 195-200 when the risk reward ratio would look comfortable.

Borrowing cost

In his comments to the electronic media, company CFO S. Subramanian said the company was hitherto buying much of its gold on lease basis for which it got credit for 90-180 days.

But hereafter gold imports would have to be paid upfront in cash. This would push up the cost since the company would have to borrow for its inventory at a higher interest.

While not willing to say how much the interest burden would go up, he felt that borrowing would not be a problem for TIL and he suggested that the company would look at other options to keep the borrowing costs low.

But what is important to note is that the stock in spite of the steep correction is not exactly cheap.

At its yesterday's closing price of Rs 237, the stock had a P/E ratio of 29 and its last year EPS was Rs 8.17. Today, the Re 1 face value stock shed another 11.95 per cent to trade around Rs 208.85. The equity base is Rs 88.78 crore.

(This article was published on June 12, 2013)
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