Brokerage house Emkay Global Financial Services is bullish on Titan Industries and has recommended buy rating on the stock with a target price of Rs 280 in its July 01, 2013 research report.
Emkay's research report on Titan Industries
- No change in capital deployed, but changes in financial structure. ROCE revised downwards to 43 percent in FY14E and 35 percent in FY15E
- Concern is not RBI notifications, but the emerging risk on gold inventory due to active hedging; efforts are underway to minimize the risk on gold inventory
- Hijacking conventional wisdom; ROCE of 35 percent and FCF of Rs 7.5bn in FY15E are attractive. Peer comparison on ROCE and FCF yield makes Titan very attractive.
Granular working for Titan paints a comforting picture: a) no change in capital employed, b) change in financial structure, wherein gold leasing, being part of the working capital, is replaced by borrowed funds, c) cost of funds is 7.7 percent as against 3.5 percent earlier; consequently, the interest cost jumps 3x to Rs2.0bn in FY14E and FY15E, d) ROCE falls to 43.0 percent and 35.4 percent in FY14E and FY15E, respectively, and e) transition impact on cash-flows; a cash deficit of Rs7.3bn in FY14E and free cash flows (FCF) of Rs7.5bn in FY15E.
"We are taking comfort in two data points: a) ROE and ROCE for FY15E are 35 percent (factoring in RBI notifications), and b) FCF of Rs7.5bn in FY15E; a strong financial matrix, despite all the odds. Taking into account the above, we believe, the case for derating is over-exaggerated. The peer comparison on ROCE and FCF yield makes Titan very attractive at current valuations. We retain a buy rating with a price target of Rs 280," says Emkay Global Financial Services research report.
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