Titan down 9% as RBI gold import curbs seen hurting margin

Moneycontrol Bureau

Shares of Titan Industries fell around 9 percent to Rs 215 Wednesday on fears that the latest RBI restriction on gold imports would the company’s margins.

Brokerage house Religare has downgraded its rating on the stock to 'hold' and cut price target to Rs 225 from Rs 290 earlier.

"We clearly believe that the central bank's recent moves, not just on consignment based gold imports but also on direct gold imports where they basically raised the cash margins to 100 percent clearly would lead to balance sheet pressure for Titan," Tirthankar Patnaik of Religare Capital Markets told CNBC-TV18 in an interview.

"If the stock really comes down going forward to about Rs 200 levels, that is where the risk reward becomes attractive to make a fresh entry into the stock," he said.

In a conference call with analysts to clarify on the RBI guidelines, the management said that gold import for domestic use would have be made with 100 percent cash margin, putting its ‘gold-on-lease’ business model at risk.

Titan sells nearly 16-18 tonnes of gold every year, 80 percent of which is on lease basis. The company will now have to buy this on a spot basis or literally on a cash & carry basis.  

Axis Capital has retained its sell call on the stock, and lowered price target to Rs 210 from Rs 243.

"Titan will resort to debt to fund the higher working capital. To factor in lower interest income and higher finance cost, we revise downwards our earnings estimates," said the note by Axis Capital.
 
"We also lower our target PE to 20 times given return on equity (RoE) compression to 35% (42% in FY13) and potential scaling down of expansion plans as capital requirements increase," said the note.