Titan Company shares plunged 14 percent intraday on July 9 after the company reported a slowdown in its jewellery business in June quarter. Consequently, Global brokerage Credit Suisse also downgraded the stock to neutral.
The stock has seen biggest single day intraday fall in last 11 years. Investors’ wealth eroded by Rs 15,500 crore in a single day as its market capitalisation declined to Rs 95,703 crore from Rs 1,11,208 crore.
Ace investor Rakesh Jhunjhunwala and his wife also held 7.04 percent stake in the company and the value of their holding declined by Rs 1,124 crore in a single day.
Titan’s revenue in the quarter ended June 2019 grew a muted 13 percent as a sharp increase in gold prices dented consumer demand significantly. Jewellery business contributed 82 percent to total revenue in FY19. Gold price increased by 10 percent during June quarter.
“The quarter witnessed a tough macro-economic environment with consumption being hit. Very high gold prices, particularly in June, also affected growth in the Jewellery industry. Against this background, the company’s growth in the Jewellery segment was lower than planned even though the gains in market share were sustained,” company reasoned.
Titan said watches division continued with good sales momentum with revenue growth of 19 percent, partly aided by the execution of a large institutional order from Tata Consultancy Services (TCS).
Eyewear segment witnessed revenue growth of 13 percent, driven by the activation during the quarter, it added.
“Impact of higher gold price should not last beyond a few months,” said global brokerage house Credit Suisse that downgraded Titan Company to neutral from outperform with a target price at Rs 1,250, implying flat growth from current levels.
The research house further said it would look for a better entry point. It cut earnings estimates by 2 percent.
The brokerage feels stretched valuations and near-term softness cap upside.
The stock rallied 50 percent in the past year, driven by significant re-rating in P/E multiple. It trades at 48x on FY21 estimated earnings, which is at a premium to HUL, Credit Suisse said, adding the only upside on the stock at these levels is potential EPS upgrades.
HSBC also downgraded the stock to hold and maintained target price at Rs 1,300 per share.
IDFC Securities maintained outperform rating on the stock with a target price at Rs 1,310 per share, but expects the stock to remain under pressure in near term.
“Weak start and a high base in coming quarters may lead to earnings cut, but medium-to-long-term structural drivers remain intact,” it said.
The company added 12 Tanishq stores in Q1. “Remaining quarters should see an uptick in the pace of store additions. We expect overall sales growth of 14 percent for Q1,” IDFC said.
Hedging gains and control over other overheads should curtail margin impact, said the brokerage which is building in a 20 percent revenue for the jewellery division in FY20.
The stock was quoting at Rs 1,089.60, down Rs 163.05, or 13.02 percent on the BSE at 1054 hours IST.
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