Titan Company witnessed its biggest single-day fall in 11 years after the stock of the company plummeted as much as 14 percent intraday before closing 12 percent down on July 9.
The slump was in reaction to the company’s report that indicated a slowdown in the jewellery business, coupled with triple rating downgrades from global brokerage firms Morgan Stanley, HSBC and Credit Suisse.
Morgan Stanley downgraded the firm to equalweight from overweight with a target of Rs 1,300 per share. Meanwhile, Credit Suisse downgraded the stock to neutral from outperform with target unchanged at Rs 1,250 per share. HSBC downgraded it to hold from buy, maintaining the target price at Rs 1,300.
The scrip is currently trading at a two-month low and has been on a losing streak for past four sessions. In these four sessions, the market capitalisation of Titan has fallen about Rs 17,005 crore, falling from Rs 1.14 lakh crore on July 4 to Rs 97,576 crore on July 9.
The Big Bull Rakesh Jhunjhunwala has also been consistently reducing stake in Titan in the past two quarters. Jhunjhunwala reduced his cumulative holding in the company from 7.12 percent in September 2018 to 7.08 percent in December 2018. He furthur reduced the stake to 7.04 percent in the quarter ended March 2019, according to shareholding data.
According to Titan’s exchange disclosures, the first quarter of FY20 witnessed a tough macro-economic environment with consumption being hit. Very high gold prices, particularly in June, led to lower growth even though it sustained the market share gains.
Jewellery business, which contributed 82 percent to total revenue in FY19, grew a paltry 13 percent YoY in the quarter ended June 2019.
According to Morgan Stanley, the risk-to-reward ratio at current levels seems unfavourable. The brokerage expects flat to low single-digit revenue growth with a decline in same-store sales growth (SSSG).
“Titan remains one of our favourite long-term plays on urban discretionary consumption growth in India. However, following the strong trailing performance, we are now reluctant to push multiples beyond current levels. We see balanced risk-reward at the current stock price,” Morgan Stanley said.
The brokerage recommends investors to shift to companies with high operating leverage. It prefers Jubilant Foodworks over Titan in the current scenario.
Credit Suisse said valuations are stretched and near-term softness cap upside. However, the brokerage added that impact of the rising gold price may not last beyond a few months.
“Weak start and a high base in coming quarters may lead to earnings cut, but medium-to-long-term structural drivers remain intact,” it said.
Reliance Securities re-iterated hold rating on the stock with a revised target price of Rs 1,221. “The current economic slowdown is likely to impact the quarterly run-rates however Titan is likely to return the higher growth path once the consumer spending picks up in the economy. Hence, we continue to value Titan at 50x based on FY21E EPS and re-iterate hold rating,” said Reliance.
Meanwhile, BofA Merrill Lynch maintained a positive outlook on Titan as the brokerage believes that Q1 is likely a temporary blip and strong growth will resume.
The brokerage reiterated buy rating with a target price of Rs 1,360.