Titan rallies 5% on hopes of healthy Q4 business outlook

Shares of Titan Company rallied 5 per cent to Rs 2,425.70 in Friday’s intra-day trade, on value buying, on expectation of healthy business outlook for the fourth quarter ended March (Q4FY23).

The stock of Tata group company hit six-month low of Rs 2,268 on Thursday, lowest level seen since July 2022. Despite Friday's run-up, in the past three months, the stock underperformed the market as shares fell 13 per cent, as compared to 1 per cent decline in the S&P BSE Sensex.

Titan's overall consolidated revenues grew 16 per cent year-on-year (YoY) to Rs 11,609 crore. Owing to lower than anticipated operational profitability, the profit after tax de-grew 10 per cent YoY to Rs 912.0 crore.

Despite healthy mix, gross margins declined 140 bps YoY to 23.9 per cent, owing to higher base (the company had recorded inventory gains on diamond) and possible reduction in making charges owing to higher competitive intensity, said analyts at ICICI Securities.

Other expenses and marketing spends as a percentage to sales increased 76 bps and 28 bps YoY, respectively. Subsequently, EBITDA margins declined 280 bps YoY to 12 per cent.

“The robust performance in challenging times reaffirms our thesis of long term market share gains for Titan. Over the years, the company withstood challenges and emerged as a resilient player. The sharp rise in gold prices and slowdown in discretionary demand could pose challenges in the near term, but the long term story remains intact as the management aspires to grow jewellery revenues 2.5x by FY27 (implied CAGR: 20 per cent from FY22 base),” the brokerage firm said.

Given strong execution, analysts at Emkay Global Financial Services, too, remain confident of the high-teens earnings trajectory for Titan in the medium term.

"The stock has corrected around 20 per cent in the last 3 months which, in our view, is unwarranted. We maintain a BUY on Titan, with Mar-24 target price of Rs 2,940, based on 52x FY25 EPS. The Stronger traction in Taneira/Handbags/international businesses remains a potential upside to estimates," they added.

Moreover, analysts at Prabhudas Lilladher upgrade the stock to BUY and increase FY23/FY24/FY25 EPS estimates by 1.5 per cent/2 per cent/2 per cent and target price to Rs 2,905 (Rs 2,875 earlier), given strong underlying demand trends across divisions in January 2023 and around 17 per cent correction from the peak.

"The Q3 results show disappointment in jewellery margins as one-off impact of gains in studded business waned off. Jewellery business outlook remains robust with Golden Harvest scheme enrollments & gold exchange back to pre covid levels," the brokerage firm added.