Brokerages stay bullish on Titan even as watch segment disappoints

MUMBAI: Shares of Titan moved higher in trade after the company reported net profit in line with Street estimates. Poor performance from its watch division was offset by a pick-up in jewellery business.

Most brokerage are bullish on the stock and held on to their recommendations post results as they expect the sales to improve with increase in spending power as the economy picks up.

The company reported a 15.19 per cent rise in standalone net profit at Rs 190.73 crore for the third quarter ended December 31, 2014 as against a standalone net profit of Rs 165.57 crore in the corresponding quarter a year ago.
Net sales rose 9.35 per cent to Rs 2,898.28 crore in the Oct -Dec quarter compared to Rs 2,650.46 crore in the year-ago period.

Revenue from jewellery business grew 11.21 per cent to Rs 2,347.39 crore during the quarter under review as against Rs 2,110.70 crore of the same period last fiscal.

Watch business reported a 1.9 per cent decline in sales and 9.2 per cent in EBIT. Margins declined by 70bps YoY to 9.7 per cent as 4 per cent volume decline provided negative operating leverage.

“We expect margins to improve as benefits of hedging are realised in the coming quarters. Implementation of gold on lease scheme can provide further upside to our estimates. Watch business looks jittery given rising competition and huge discounts from global brands on online platform,” said a Prabhudas Lilladher report.

The brokerage has increased its FY16 and FY17 EPS by 3-6 per cent mainly due to 400bps lower tax rate. It has maintained an ‘Accumulate’ rating on the stock with a price target of Rs 424 on hopes of recovery in jewellery, watches, eye-wear and accessories sales.

According to HDFC Securities, the company continues to rely on a mix of gold sourced from domestic entities and outright purchases. As a result, Titan’s jewellery margins are expected to see benefits of international hedging gains from 4QFY15E onwards until supply resumes under the gold-on-lease model.

“As per Titan’s management, demand uptick may remain muted in 1HCY15 owing to absence of GHS sales and consumer discretionary spends yet to see a noticeable improvement. However, we believe that Titan remains the best long term play on an urban consumption revival and retain our BUY rating with target price of Rs 450,” the report said.

Meanwhile, Kotak Institutional Equities has retained ’Reduce’ rating on the stock given demanding valuations and high uncertainty on jewelry volumes and gold prices.

“EPS estimates go up marginally as we bake in the management’s fresh outlook on tax rate,” the report said. The brokerage has retained its ‘Reduce’ rating while increasing its target price to Rs 370 from Rs 350 earlier.

At 12:50 pm, he stock was at Rs 421.30, up 5.25 per cent, on the BSE. It surged 6 per cent to touch intraday high of Rs 424.