Titan Company share price closed 10% lower today after the firm reported Q2 earnings that fell below street expectations. Subdued performance in the jewellery business after gold prices hit all time high affected the performance of the jewellery and watch manufacturer for quarter ended September.
Reduction in growth guidance of jewellery business from 20% to 11-13% led to negative sentiments around the stock today. Jewellery growth guidance was trimmed due to muted 10% growth during the festive season against the pick-up seen in August and September 2019.
High gold prices have posed a challenge for Titan in the last few months.
On August 29, gold price hit all-time high of Rs 40,220 per 10 grams, according to the All India Sarafa Association.
On October 9, the firm in a quarterly update said, "The company's jewellery division witnessed a sharp fall in sales after a sudden surge in gold prices dented the consumer demand from mid-June. The weakness continued during July too and resulted in considerable de-growth in sales during the month."
Demand for gold is expected to fall to its lowest level in three years this year, World Gold Council (WGC) said on Tuesday which may hurt the business of jewellery firms in the future.
Titan Company stock opened with a loss of 9.65% at Rs 1160 today compared to the previous close of Rs 1283 on BSE. It fell up to 10.43% to Rs 1150 intra day. The large cap stock closed 9.96% or 127 points lower at Rs 1,156. Titan Company investors lost Rs 11,350 crore in wealth today. Titan market cap on BSE fell to Rs 1,02,628 crore compared to the previous close of Rs 1,13,978 crore on BSE. The stock has lost 13.24% in last four sessions.
However, Titan share price has gained 36% during last one year and risen 24% since the beginning of this year.
The firm reported a 1.8 per cent year-on-year (YoY) growth in standalone net profit at Rs 320.16 crore for the second quarter ended September 30, 2019 against standalone net profit of Rs 314.38 crore in the same quarter last year.
Revenue from operations during July-September quarter stood at Rs 4,435 crore, against last year's income of Rs 4,407 crore during the same period. Total income rose marginally by 0.7 per cent to Rs 4,466 crore in Q2FY20, from Rs 4,434 crore in Q2FY19.
Segment wise, jewellery business had a subdued quarter due to very high gold prices, recording revenue of Rs 3,528 crore as compared to Rs 3,582 crore last year.
Watches business recorded an income of Rs 719 crore against Rs 676 crore in the previous year, a growth of 6.4 per cent. Eyewear business grew by 28.5 per cent in the quarter, recording an income of Rs 154 crore as against Rs 120 crore last year. Other segments of the company comprising accessories, fragrances and Indian dress wear grew by 33.2 per cent in Q2 recording an income of Rs 44 crore.
After Titan lost its shine on Q2 earnings performance, BusinessToday.In spoke to analysts to find out whether investors should buy, hold or sell the stock.
Umesh Mehta, head of research at Samco Securities said, "Given very high valuation of the stock, there was little room for error. Effectively, there is 50% reduction in revenue growth forecast which is huge and therefore earnings multiple will contract adjusting to the lower growth. We see further downside of up to Rs 1,000 in the medium term. One should not catch a falling knife which Titan typically fits into currently. Therefore, it is not a good time to buy. Those who have a short-to-medium term horizon may sell and ultra long-term investors should hold the stock."
Santosh Meena, senior analyst at TradingBells said, "Titan stock fell as earnings missed estimates and management cut guidance for the jewellery business in H2 FY20. A similar situation has occurred in the past also but at lower levels, the stock has managed to attract investor interest.
Current fall is another buying opportunity for investors where Rs 1160- Rs 1130 is a strong demand zone which coincides with its 200-day moving average of Rs 1,143. Up sloping trendline support comes around Rs 1,100 level and this should be the stop loss for those who have a trading view in Titan. For long-term investors, any dip is a buying opportunity till Rs 1,000 level."
Rahul Agarwal, Director at WealthDiscovery/EZ Wealth said, "In the past six months, gold prices have spiked more than 17 percent. The overall consolidated revenue grew by just 2 percent, while revenue of the jewellery business fell by 2 percent YoY, and adjusted PAT declined by 2.7 percent for the same period.
Even as the jewellery business may take another 2-3 quarters to regain lost ground, Titan will maintain its leadership position in the industry as it will continue raising its share of studded (jewellery) and in-house frame manufacturing (eyewear) with cost optimisation and operating leverage in place. For now, we expect that the quarterly performance is adjusted into the price.
We expect limited downside, while there may not be any sharp rise in the short-term. Investors who already have the stock, should continue to hold and those who are trying to get in, it would be better to wait and enter after the stock price stabilises in coming days.
By Aseem Thapliyal