Why brokerages are not recommending a sell on Titan Company

Our Bureau Chennai | Updated on November 06, 2019

Analysts expect Titan to grow its market share in jewellery segment

Shares of Titan Company plunged sharply on Wednesday after the company reported a muted second quarter result and weak guidance for H2 of current fiscal.

Shares crashed to a low of Rs 1,158, over 10 per cent fall, and currently ruling at Rs 1,163.05, against the previous day's close of Rs 1,283.80.

The company had reported a consolidated net profit of Rs 303 crore for the July-September period as against a profit of Rs 306 crore a year-ago. The September quarter consolidated sale of product services stood at Rs 4,601 crore (Rs 4,522 crore).

Read more: How to benefit from Titan Company stock’s narrow movement

In Q2FY20, muted consumer sentiment and sharp increases in gold prices hurt demand for jewellery.

According to Titan’s management, low ticket size discretionary purchase items were worst impacted. High promotions in August and September helped mitigate this somewhat with the non-discretionary wedding jewellery portfolio growing about 30 per cent y-o-y in Q2-FY20. However, despite corrective actions, Titan reported 2 per cent y-o-y decline in standalone jewellery revenues.

UBS, global investment advisory firm, said its top-down model indicates that Titan can grow market share in the wedding segment in the addressable market from about 6.1 per cent in FY19 to about 12.1 per cent in FY23. "We believe Tanishq's overall market share for this consumer segment is likely to grow from about 13.5 per cent in FY19 to about 20.5 per cent by FY23. In our view, it is a compelling market share accretion and this is key to our Buy thesis on the stock". UBS, which has set a 12-month price target of Rs 1,525 (reduced from earlier Rs 1,600), believes any stock price correction post Q2-FY20 results is a further opportunity to buy.

Credit Suisse says Titan faces risks of further cuts to the lowered 2H expectations as: (1) the early festive season would have pushed some primary sales to 2Q, (2) the base for margins is high and (3) there is a large institutional order in the 3Q base. "We cut our FY20-22E earnings by 8-10 per cent." It maintains its neutral stance on Titan with a price target of Rs 1,110.

Domestic broking firm Motilal Oswal Securities said revised jewellery sales guidance of 11-13 per cent for 2H-FY20 is a near-term negative. Demand trends are improving albeit not at the pace originally envisaged, leading to 8-10 per cent cut in EPS forecasts. The longer-term investment case remains promising as Titan is well placed to grow its share in the largely unorganised jewellery market from the current level of about 8 per cent. Motilal, however, downgraded the stock to Neutral from Buy with a price target of Rs 1,275.

Consistent RoE of about 25 per cent in the coming years and strong cash flow generation ability is likely to aid Titan to trade at premium valuation of 55x of FY21E, based on CMP, said Reliance Securities, while maintaining a Hold recommendation on the stock with a revised target price of Rs 1,220,

Emkay Global downgrades Titan’s rating to Hold from Buy due to weak Q2 results and lowered H2 guidance. It reduced it's price target to Rs 1,230 from earlier Rs 1,385.

HDFC Securities, which also maintains a neutral stance on the stock, said: "We largely maintain our FY20/FY21 EPS estimates and DCF based target price of Rs 1170/share (implied P/E of 42x Sept-21E EPS).

Published on November 06, 2019

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