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Titan Industries, owner of jewellery brand Tanishq and Fastrack watches, has been upgraded by foreign brokerage Credit Suisse on expectations of a reversal in gold import restrictions and improvement in demand from urban consumers.
The brokerage firm upgraded Titan to ‘Outperform’ from ‘Neutral’, and raised its price target to Rs 310 a share from the earlier Rs 250. “We value Titan at a P/E (price to earnings multiple) of 27x, in line with its average P/E since 2005, as the regulatory overhang on the stock should dissipate. We also believe the earnings downgrade cycle has bottomed out,” said the Credit Suisse report authored by analysts Arnab Mitra and Akshay Saxena.
Last year, the government had imposed restrictions on gold imports to check foreign exchange flow as the rupee started depreciating sharply against the dollar. These restrictions hit jewellery retailers and manufacturers such as Titan, on account of both the regulatory measures and falling consumer demand.
The report cited improvement in the currency and the current account deficit as positives for the company. The brokerage expects a reversal in the regulatory stance on gold imports after the elections. “We expect the gold regulatory framework to be dismantled in six to 12 months…there is consensus among political parties for easing restrictions on gold imports, including the main opposition party (BJP) which is ahead in most opinion polls,” the report said.
The brokerage believes categories such as jewellery have a lot of pent-up demand and Titan, with its large retail presence, could see an early recovery if the urban consumer sentiment improves. “Titan, in the midst of a slowdown, has doubled its jewellery retail space in the past three years, and a pick-up should accelerate the ramp-up of these newer stores in the system,” said the report. Further, the brokerage foresees joint ventures with global brands, like the one with Mont Blanc, and new product categories like eyewear and perfumes, among others, to drive business.
