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Titan stock price drops 7% on May 06. Why brokerages have cut target price

Analysts attribute this margin miss to heightened competitive pressure due to a spike in gold prices

Titan

Tanmay Tiwary New Delhi
Titan shares plunged 7.02 per cent to Rs 3,287 apiece on the BSE on Monday as brokerages cut target price for the stock following weaker-than-expected Q4 results. Titan is also the top loser on both NSE and BSE.

Titan reported a decline in its jewellery business earnings before interest (Ebit) margin by 80 basis points year-on-year (Y-o-Y) to 12.2 per cent, which missed street estimates. 

Analysts attribute this margin miss to heightened competitive pressure due to a spike in gold prices, alongside increased marketing expenditures aimed at driving aggressive growth and customer acquisition.

Despite a 16 per cent annual increase in its topline to Rs 11,257 crore, a 7 per cent surge in bottom line to Rs 786 crore, and a more than 6 per cent rise in Ebitda to Rs 1,109 crore, Titan witnessed a contraction in its margin by 90 basis points to 9.9 per cent. 

Additionally, the company declared a dividend of Rs 11 per share.

Brokerages, in response to these results, slashed their target price for Titan, reflecting concerns over its performance.
 
Kotak Institutional Equities 
Even though we expected elevated competitive intensity to weigh on margins, the magnitude of margin pressure exceeds expectation. We trim FY2025/26E consolidated jewellery EBIT margin estimate by 90-110 bps, cut EPS by 5-8 per cent and revise fair value (FV) to Rs 3,600, from Rs 3,750 earlier.

We would keep an eye on the adoption of lab-grown diamonds in India (and Titan’s studded share) and Aditya’s Birla Group’s upcoming jewellery foray.

Nuvama Institutional Equities
Management did indicate given the current scenario of rising gold prices, competitive intensity as well as marketing investments would stay higher, which would affect margins. Given the weakness in margins to continue in the near-term, especially in H1FY25, we cut FY25E/26E PAT by 6 per cent each and downgrade the stock to ‘Hold’ from ‘Buy’ with a revised target price of Rs 3,867, from Rs 4,106 earlier.

Margins to remain soft for the first half of financial year 2025 (H1FY25), Nuvama said in a note.

JM Financial 
Titan’s March quarter earnings were below expectations. The revenue was in-line but lower margin across segments (weaker gross margin in jewellery & lack of operating leverage in other segments) drove an overall miss on segment profits. 

Jewellery sales growth of 19 per cent was strong, especially in context of weak consumer sentiment and steep inflation in gold prices. However, growth came at cost of margins – a conscious choice by the mgmt. to remain aggressive on driving growth given the high competitive intensity. 

In the near-term, growth/margin is likely to be impacted by volatility in gold prices, elections & lower wedding dates. However, for the full year, Titan will target to maintain its jewellery division growth momentum and reiterated margin guidance of 12-13 per cent. 

Watches/eyewear performance has been volatile & a lot more work needed before it reaches steady-state. Stock could react negatively to weak March quarter results & near-term demand issues. From LT perspective, considering large opportunity size & Titan’s superior execution capabilities, headroom for growth remains strong. 

Emkay
Titan’s Q4 PAT missed estimates, due to 70-100 bps jewellery margin miss and higher subsidiary loss. Whereas jewellery topline growth is healthy at ~20 per cent, the margin miss is a factor of high competition and higher gold mix in studded sales. 

In our view, near-term earnings per share (EPS) growth will be hit by elevated gold prices and added promotions. 

But we like Titans focus on share gains (versus  near- term margin), as growth outlook remains robust, at ~20 per cent compound annual growth rate (CAGR). It upheld its guidance of jewellery EBIT margin band of 12-13 per cent, which would probably stay at the lower-end, as Q1 is likely to miss the band by a margin. 

Growth opportunity stays healthy, with entry into new cities/catchments and expansion of existing stores.

We cut estimates by 5-6 per cent on near-term margin pain but recommend buying into any significant corrections; maintain ‘Buy,’ with tweaked down target price of Rs 4,150, from 
 (65x FY26E EPS).

Motilal Oswal 
The near-term growth outlook appears subdued due to high gold inflation affecting demand sentiments, which is a typical trend during inflationary periods. 

However, despite the near-term jitteriness, the company remains aggressive in its growth outlook, driven by new store additions, attractive designs, and market share gains, et al. 

Titan also maintains a Jewellery Ebit margin of 12-13 per cent for FY25. We will monitor the near-term consumption trend. However, due to competitive pressure on margins, we cut our EPS estimates by 6 per cent/ 5 per cent for FY25/26. Reiterate ‘Buy’ with a target price of Rs 4,100.


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First Published: May 06 2024 | 11:10 AM IST

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