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    Analysts positive on Titan despite Q1 loss

    Synopsis

    As its stores remained shuttered across vast swathes of India through the three months of summer, Titan reported a June-quarter loss of Rs 270 crore, compared with a profit of Rs 371 crore in the year-ago period.

    ET Bureau

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    Mumbai: The last time Titan posted a quarterly loss, Facebook had just been founded, WhatsApp was a dream too distant into the future, and jewellery had still not displaced timepieces as the main revenue generator at the Tata enterprise.

    It is quite natural, therefore, that a quarterly loss at such a company, now considered the gold standard in the retailing of discretionary products, will rattle investors. So, the stock plunged about 4 per cent Tuesday, but the jury remained divided on the prospects of Titan that now gets four-fifths of its revenue from jewellery.

    As its stores remained shuttered across vast swathes of India through the three months of summer, Titan reported a June-quarter loss of Rs 270 crore, compared with a profit of Rs 371 crore in the year-ago period. The red ink triggered mixed reviews. CLSA retained its sell rating. Credit Suisse and Haitong have maintained neutral and ICICI Securities has retained its hold rating. By contrast, Kotak Institutional, Motilal Oswal, Edelweiss and HSBC are advising investors to buy Titan.

    “We expect its margin to remain under pressure in the short term even as Titan should benefit from consolidation longer term... Higher exposure to impulse consumption, a rise in competition and the need to support franchisees may result in earnings downgrades,” said CLSA.

    Credit Suisse has cut earnings estimates for FY21 by 8 per cent and by 2 per cent for F22.

    But to several investors, the reaction of the Street on Tuesday can at best be described as knee-jerk. It is true that sales of jewellery saw a 71 per cent drop in value and 81 per cent in volumes. But demand is improving month on month and July sales were 101 per cent of the previous July, with 97 per cent of Titan stores reopening, albeit with curtailed working hours and operational curbs.

    The Titan management told analysts in a call that good demand was seen in the first eight days of August as well.

    Officials also said their confidence on the medium-term growth prospects has only increased in the past two months and that the recovery in the jewellery segment could be faster than the earlier guidance of the March quarter of this fiscal.

    There are some pre-purchases for weddings scheduled in the third quarter as gold prices are going up. The management also believes that the company has gained market share.
    titn-graph

    And the jewellery business is shining.
    Despite multiple industry-wide changes, such as the introduction of GST and compulsory PAN for purchases and demonetisation, Titan has managed to deliver a 16 per cent sales growth and operating profit and net profit of about 20 per cent over the past decade.

    As a result, most analysts remain positive on the stock and are valuing the company on FY22 earnings, which is expected to double over FY21 earnings. “We maintain a buy with a target price of Rs 1,300, valuing the company at 55 times its estimated June FY22 earnings,” said Krishnan Sambamoorthy, analyst with Motilal Oswal.

    Kotak Institutional Equities has retained buy in view of potential acceleration in market share gains as Titan emerges stronger relative to the competition in the post-Covid world.

    Currently, the stock is trading at Rs 1,068. ICICI Securities is valuing the company at 49 times earnings, thus giving it a target price of Rs 1,100 on similar FY22 earnings estimation (earning per share of Rs 22).

    “We expect the stock to show near-term pressure due to a tepid first quarter and hazy outlook over the next two quarters. We recommend accumulating the stock at sub-1,000 levels,” said Manoj Menon, lead analyst with the brokerage in a report.
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    1 Comment on this Story

    Suresh Kamath75 days ago
    One Sparrow DOES NEVER set a Summer and such blip due to Covid 19 and Retail SALES at counters NOT the attraction for these TITAN Products and hence such total backing of these Analysts and HOLD and accumulation at dip surely the BEST Move any Investors would do on this Stock
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