Even as coronavirus lockdown took toll on Titan's business in recent weeks, the jewellery maker is expected to soon bounce back, analysts said. Comfortable liquidity position and strong brand patronage are a few factors that may help boost profitability going ahead, they added. "Titan seems best placed to gain against the competition, with a stronger rollout of online initiatives and wider portfolio," Emkay said in a report.
It comes as Titan reported a growth of 21.11 per cent in net profit to Rs 356.79 crore in the fourth quarter of FY20. However, the total income fell 5.46 per cent to Rs 4,468.84 crore. The business was hit significantly in the second half of March owing to coronavirus lockdown which led to closing of its stores across the country, Titan said. The jewellery business had a good quarter till lockdown even as the gold prices remained on the higher side, it added.
The big names invested into the jewellery maker's stock include veteran investor Rakesh Jhunjhunwala and his wife Rekha Jhunjhunwala. Rakesh Jhunjhunwala has been bullish on Titan since Sensex was trading at 4,500 level. In the March quarter, the couple had cut their stake in Titan to 5.53 per cent for the quarter ended March 2020. The Jhunjhunwala couple sold 1.03 crore shares of Titan during last quarter. For the quarter ended December 31 2019, Jhunjhunwalas held 6.69 per cent stake in the company.
Normalcy is expected to return in sales by the fourth quarter of FY21, company said in an investors' concall post its March quarter earnings.
ICICI Securities said that Titan has a comfortable liquidity position due to adequate banking limits and ability to issue commercial paper at attractive rates. "With a gradual rise in cash inflows, the management expects to be net cash positive by September 2020. Titan remains a quality franchise with strong brand patronage. The stock saw a sharp run up in the last month (up 22%) and is currently trading at rich valuations. We continue to remain structurally positive on the company and its long term growth prospects," it added.
However, Motilal Oswal Financial Services said that the investors should remain little cautious going ahead as the first quarter of the ongoing fiscal may be painful for the company.The June quarter of FY21 would be negatively impacted owing to the 'ineffective hedge' on account of higher gold prices, which would be reversed in subsequent quarters.
"In addition to the COVID-19 impact, higher prevailing gold prices and the likely lower share of high-value studded jewellery would weigh on profitability. Moreover, management's reluctance to reduce staff costs, while good for long term growth, would have an adverse impact on near-term profitability," Motilal Oswal added.
Shares of Titan witnessed a 40 per cent fall in value between the middle of February and the end of March when bourses began to sense coronavirus spread. Stock was trading at Rs 987.55, down 9.55 points, or 0.96 per cent on NSE at the time of reporting.