Moneycontrol Bureau
Maverick investor Rakesh Jhunjhunwala's one of most favoured stock seems to be losing sheen for sometime now. CLSA has reiterated a high conviction sell rating on Titan stating that FY15 is a year to forget while the future looks equally grim.
Weak macro, lower gold prices and rise in competition are major risks the jewellery company is facing. It feels only a much higher volume growth and rise in gold prices may ease out the stock. Shares of Titan fell 2 percent intraday on Wednesday.
According to the brokerage, regulatory measures like capping of Golden Harvest to 25 percent of net worth and potential reduction of threshold for PAN disclosure (tax number), pose near-term challenges.
Discontinuation of Golden Harvest scheme also impacted net cash which was at Rs 110 crore. With rising competition from regional players like Kalyan and Malabar, Titan was forced to reduce making charges. "The effort is also rising on wedding jewellery. While these are good strategies, benefits would be realised in the medium term. Near-term, this poses question mark on margins and earnings growth," CLSA says in a note.
Titan's FY15 return on equity (RoE) declined 4.3 ppts year-on-year to a decade low of 29 percent, primarily due to lower asset turns, even while EBIT margins stayed flat on an annual basis. FY14 was marred by the impact of gold on leasing which came back in FY15.
In an earlier interview to CNBC-TV18, Bhaskar Bhat, MD of the company says rural consumption has slowed down and overall jewellery demand has not grown.
"This year rural has got affected more than urban because the wedding season purchases have been rather weak. Weddings used to drive significant demand and we have seen this in watches in Uttar Pradesh (UP) and Bihar and the Northern belt –Madhya Pradesh (MP) and so on, in fact there has been a decline in sales. That is a clear indication that rural customer has not spent on discretionary items," he said.
It is only diamond jewellery growth which is above industry average.
However, these do not deter investors like Jhunjhunwala. Jhunjhunwala has increased his stake in Titan by 106 basis points in June-end. He had sold 1.28 percent stake in Titan in quarter ended March.
As per BSE data, Rakesh Jhunjhunwala's stake in Titan Company increased to 6.72 percent in June quarter from Rs 5.66 percent in March quarter. His wife Rekha Jhunjhunwala who held 1.67 percent in March quarter bought more to up her stake to 1.91 percent in June quarter.
At 12:24 hrs Titan Company was quoting at Rs 354.00, down Rs 6.05, or 1.68 percent on the BSE.
Posted by Nasrin Sultana
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