Stock prices of jewellery companies Titan Company, Tribhovandas Bhimji Zaveri and PC Jeweller have gained momentum following stellar performance in the June quarter, wherein sales grew 27-42 per cent year-on-year and net profit jumped in the 27-159 per cent range, according to Capitaline data.
Many factors helpRise in demand ahead of implementation of the Goods and Services Tax (GST) from July 1, more number of auspicious days to celebrate weddings, record demand during Akshaya Tritiya, advertisement campaigns for certain new product launches/collections, stable gold prices and a favourable base (15-day strike in the same quarter last year) are the main reasons for the jump in sales and bottomline, according to analysts.
“GST rates are modest and almost in line with the tax rates prevailing earlier. Hence, consumers have adjusted to the same quickly,” said PC Jeweller in a post-results presentation.
Moreover, investors are giving a thumbs up to the stocks as the companies have continued with / improved on their robust financial performance.
In the March quarter, they reported growth of 15-43 per cent and 8-133 per cent in net sales and profit, respectively, despite demonetisation.
Hence, the share prices of these companies have been on the uptrend over the last six months, gaining 39-66 per cent. A rally in the stock prices of mid- and small-cap companies have also added sparkle to the performance of the three jewellery stocks . On Friday, the stocks closed 2-9 per cent higher. Titan and TBZ shares hit new 52-week highs.
Pause in momentum likelyHowever, the momentum in financial as well as stock performance of these companies is unlikely to be sustained at least for the medium term.
In the post-results conference call, the management of Titan told analysts that sales in July were suppressed and no significant shift was seen so far from the unorganised to the organised sector in July post GST implementation.
This might put the brakes on the stock’s performance for a while as investors would like to wait and watch for further upside triggers. Besides, a one-year forward valuation of around 40 times the price-to-earnings multiple for Titan and TBZ looks stretched in any scenario. The share price of Titan at ₹610.75 has crossed the average target price of ₹556.
ICICI Securities has downgraded the Titan stock to ‘hold’ from ‘add’ as it believes that upside at current valuations is limited.
IDFC Securities said: “Though the earnings trajectory is strong, with no significant headwinds expected, we believe valuations at 40xFY19E do not provide an absolute upside potential from current levels.”
Consensus view on the Titan stock is neutral. There is no analyst view on TBZ and PC Jeweller but it should not be different or lower than Titan as the latter is the market leader among organised players.