Brokerages place bets on Titan, see double-digit upside in the stock

After three consecutive sessions of losses, shares of Titan Company rose over a percent in morning trade on BSE on September 23.

The company was dealt a severe blow by COVID-19 as the pandemic triggered strict lockdowns completely battered the retail sector.

In the calendar year so far, shares of this one of the largest, most efficient and profitable specialty retailer in India are 7 percent down.

The company reported a net standalone loss of Rs 270 crore for the quarter ended June 2020 as the COVID-19 pandemic hit business. The loss was higher than a CNBC-TV18 poll estimate of Rs 175 crore.

Standalone revenue during the quarter declined 62.3 percent year-on-year to Rs 1,862 crore compared to the corresponding period last fiscal.

Light at the end of the tunnel

Titan can get benefits from the strong market share in the jewellery and wrist watches segment mainly driven by a wide range of product portfolio catering mainly to the premium and value-added designer jewellery segment.

Brokerages highlight Titan has major revenue and EBIDTA comes from the jewellery segment which is highly sensitive to the overall macro-economic scenario. The company also benefits out of a large share of franchisee sales which helps more in the current times of underutilization.

Reports indicate Tanishq revenues have recovered to 90 percent of pre-COVID levels – significantly ahead of consensus expectations.

Brokerage firm ICICI Securities has upgraded the stock to 'add' from 'hold', with a DCF-based revised target price of Rs 1,250 from Rs 1,100 earlier.

The brokerage has increased FY22 earnings estimates by nearly 2 percent and modelled revenue, EBITDA and PAT CAGR of 14, 13 and 16 percent, respectively over FY20-22E.

"As Tanishq revenues have recovered significantly ahead of consensus expectations, likely drivers of this trend are (1) boost to volumes due to (somewhat) stable gold prices, (2) consumers have (likely) started accepting higher gold prices and expect further inflation and (3) market share gains (liquidity challenges for smaller competitors)," ICICI Securities said.

"Upside trigger is gold price correction or volatility leading to a surge in volumes. That said, the introduction of fixed making charges, even though a small proportion currently, is something that we will watch carefully," the brokerage added.

Brokerage firm HDFC Securities has a buy call on the stock with a base case fair value of Rs 1,192 and a bull case fair value of Rs 1,266 for six months.

phenomenal track record of consistent market share gains.

The brokerage added that the management continued focus on new launches and consistent expansion of the product portfolio by entering into newer categories is further likely to fuel future growth.

The brokerage expects that COVID-19 led lockdown and slowdown in the economy will lead to subdued growth and sluggish operational performance in FY21.

"Titan is a structural growth story and is a strong play on the consumption theme and rides on the long-term opportunity on rising income, increased discretionary spending, gains from penetration and premiumisation trends," HDFC Securities said.