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Once billed as one of the best plays in the consumer durables space, Titan Industries has seen its stock plummet from its 52-week high of Rs 313.60 (30 Nov 12) to Rs 200.00 (13 Jun 13), translating into a fall of over 36% in just seven months.
Though it has recovered from its 52-week low levels, the stock came under heavy selling pressure on Tuesday, skidding 7.5%, or Rs 21, to Rs 260 levels in intra-day deals. The S&P BSE Consumer Durables index that lost 5.5%, as compared to around 1.7% fall in the S&P BSE Sensex and the CNX Nifty is among the top sectoral losers in trade.
Points out Chandan Taparia, derivative analyst, Anand Rathi Financial Services: “The stock had been range-bound since the past few sessions. F&O parameters indicate long liquidation. There is some support at Rs 253 – 255 levels and it will face resistance at Rs 220 levels.”
On the policy front, reports suggest that in a move to curb the import bill and bring down the current account deficit (CAD), the finance ministry has compiled a list of non-essential goods which could be subjected to higher customs duty, which includes pearls, precious and semi-precious stones.
Analysts suggest that a hike in duty will be a double whammy for importers who are already facing the brunt of a falling rupee. Measures to curb import of gold have also impacted sentiment.
A K Prabhakar, senior vice-president (equity research), Anand Rathi feels that fear of more control as regards gold imports is taking a toll on the stock in trade today.
“Recent policy action by the RBI to constrict gold imports for India clouds the long-term growth visibility for Titan. Based on our calculations, recent policy changes may restrict overall gold imports to ~200 tons pa (versus ~573tons of jewellery demand and ~923 tons of total demand in F13). We expect multiples to compress as markets factor uncertainties around low visibility in long-term growth, risks to operating margins, higher hedging costs, increased earnings volatility, and so on,” points out a Morgan Stanley July 2013 report.
“Valuations are not supportive either. Despite being the weakest performer in our coverage universe YTD, Titan’s 12-month-forward P/E (26.5x) stands at an 11% premium to its five-year average. At our target price of Rs 205, the implied F15e P/E is 19x,” it adds.
However, Amnish Aggarwal of Prabhudas Lilladher remains bullish on the stock and suggests that strong balance sheet and brand of will enable it to source gold at more competitive costs than its peers and unorganised players and increase its competitiveness and market share. Although grey areas regarding 20% sourcing by banks for exports and SEZs are still there, according to him, the visibility on profitable growth is improving.
“We expect Jewellery margins to decline 50bps in FY14 due to deterioration in sales mix, FY15 outlook looks bright with 60bps margin expansion and 31% EBITDA growth. Watch business will gain from planned restructuring with 110bps margin expansion in FY15 (210bps decline in FY14) with 28% EBIT growth. We are increasing FY14 and FY15 EPS estimates by 5.3% and 14% to Rs9.8 and Rs13.1, respectively. We value the stock at 23xFY15 with a target of Rs 302,” he says.
