Shares of Titan Co Ltd fell as much as 9.6% on Wednesday as several brokerages have downgraded the stock and reduced its target price after the company reported muted earnings and cut its estimates for jewellery sales growth for the second half of the year.
The stock touched a low of ₹1,160 today. At 10.04 am, the scrip was trading at ₹1,181 on BSE, down 8% from its previous close. Year to date it has risen 26.82%.
Titan has lowered its jewellery sales growth guidance to 11-13% for the second half of 2019-20 from 20%. The company reported a 1.8% year-on-year rise in net profit to ₹320.2 crore for the September quarter due to high gold prices.
A Bloomberg poll of 13 analysts had estimated the company’s profit of ₹362.20 crore, while 15 analysts expected revenue at ₹4,586.90 crore.
“There are risks to meeting this lowered 11-13% growth guidance for H2FY20," wrote analysts from Credit Suisse Securities (India) Pvt. Ltd in a report on 5 November. “The first is that the December quarter will be very challenging as: (1) the festive season was early this year and some primary sales to franchisees would have been pushed to 2Q in FY20 and (2) there is a ₹200 crore institutional order in the 3Q FY20 base," pointed out the Credit Suisse report.
Retail growth in jewellery segment was 7%, out of which like-to-like growth was 2% due to maturity of hedges. The growth was a combination of decline in July, a 15% growth in August and an 11% growth in September. This growth was driven by high levels of consumer discounting, which hit gross margins.
"Revised jewelry sales guidance a near-term negative. Demand trends are improving albeit not at the pace originally envisaged, leading to 8-10% cut in EPS forecasts," said Motilal Oswal in a note to its investors. The brokerage firm has downgraded the stock to ‘neutral’ and revised its target price to ₹1,275 a share.
Brokerage firm UBS cut its target price to ₹1,283.85 a share from ₹1,600 earlier as it reduced its earnings estimates by 9.1%, 8.4% and 6.8% for FY20, FY21 and FY22 respectively.
Dolat Capital cut its ratings to sell from accumulate and set target price to ₹1,160, down 9.6% from the last price. IDFC Securities cut recommendation to ‘neutral’ from ‘outperform’ and revised its target price to ₹1,142, down 11% from earlier estimate. JP Morgan cut its ratings to ‘neutral’ from overweight and lowered its target price to ₹1,260, while Morgan Stanley reduced it to ‘equal weight’ from ‘overweight’ and set its price target to ₹1,240.
Brokerage firm Emkay Research reduced its FY20-22 EPS by 8-9% and now estimate lower jewellery growth of 10% in FY20 and 18% for FY21-22. “Slower-than-expected pick-up in consumer spending can drive further downsides to our FY21-22 estimates. After the recent stock run-up, valuations at 54x FY21E EPS appear unattractive. Hence, we downgrade the rating to Hold from Buy," the brokerage firm said.