Titan Co.’s pricey stock stares at dull near-term future; Q4 margins disappoint


Shares of Titan Co. Ltd have underperformed the broader market this calendar year. On a year-to-date basis, the stock has declined by 5% vis-à-vis the 6% gain in the Nifty 100 index. For investors, the stock’s pricey valuations have always been a concern and that is one reason why the shares have underperformed so far this year.

What’s more, with the ongoing second wave, covid-19 has returned to haunt Titan again. The company told analysts that half its stores are shut owing to the pandemic. JM Financial Institutional Securities Ltd said in its March quarter results review on 29 April, “Near-term demand condition is also uncertain, with about 50% of Tanishq stores closed for business for now, following the reimposition of localized lockdowns in the country in recent weeks.”

Jefferies India Pvt. Ltd has cut its FY22-23 earnings estimates by 5-8% to factor in the impact of the second covid-19 wave and resultant lockdowns and store closures. “Forecasting FY22 is particularly tough and we expect a volatile trend,” said Jefferies analysts in a report on 29 April.

It’s worth noting that Titan’s March quarter results have disappointed on the margin front. Standalone reported earnings before interest and tax (Ebit) margin of the jewellery business have declined by 330 basis points year-on-year to 10.9% last quarter. One basis point is one-hundredth of a percentage point. Ebit margin is down 50 basis points compared with the December quarter. For Titan, jewellery business is its mainstay, contributing the lion’s share of revenues and profits. In the March quarter, Jewellery Ebit margin was impacted by the lower share of studded jewellery mix, loss from customs duty cut on gold, lower margin on B2B sale and higher coin sales.

JM Financial analysts said, “There is also an element of competitive intensity involved and this could continue to drive needs for higher promotions and customer-acquisition costs in the business in the short-term, with attendant impact on margin.” As such, margin outlook remains muted in the near future.

A favourable base quarter did help jewellery revenue growth, which stood as high as 71% year-on-year. The segment accounted for 89.5% of Titan’s overall revenues, which increased by around 60%.

Overall, investors remained unimpressed with Titan’s March quarter earnings report that came post market hours on Thursday. The stock was marginally trading lower on the National Stock Exchange on Friday. Currently, the shares trade at 64 times estimated earnings for financial year 2022, based on Bloomberg data. Valuations remain pricey.

News Source:- Moneycontrol

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