Last update:06 November 2024, 12:12 IST

Analysts said the impact of reduction in customs duties, while beneficial to jewelry growth, weighed negatively on reported margins; Should you invest?

Titan stock price today

Shares of Titan fell 3 percent to Rs 3,133 on Wednesday, a day after the company said its consolidated profit for the quarter ended September 2024 fell 23.1 percent to Rs 704 crore year-on-year ( over one year), mainly due to the impact of reduced customs duties.

During the quarter, Titan’s total revenue grew 26% year-on-year to Rs 13,660 crore.

Analysts said the impact of reduced customs duties, while benefiting jewelry growth, weighed negatively on reported margins, with adjusted margins also low due to lower product mix ( nailed weaker). Following the second quarter results, Titan’s target prices were reduced by at least two foreign brokerages.

“Overall, the second quarter, while meeting our modest expectations, was still below consensus. Management’s commentary on demand has been reasonably positive, although a decline in margin guidance for jewelry would be viewed negatively, in part due to weak demand for solitaire. We reduce EPS by 3 to 7 percent and retain HOLD,” Jefferies said.

This brokerage has reduced its target price for Titan to Rs 3,400 from Rs 3,600 earlier.

Goldman Sachs lowered its FY25 EPS estimates by 8.7 percent to account for weaker-than-expected margins and the full impact of the one-time loss in jewelry. It now incorporates a jewelry adjusted EBIT margin of 11 percent compared to 12 percent earlier in FY25. It also lowered its EPS estimates for FY26/27 by 3.5 percent/ 1.9 percent to incorporate lower margins in jewelry due to higher competitive intensity, creating an EBIT margin of 11.5 percent for FY26/27 in jewelry compared to 12 percent earlier .

“Our target price decreases to Rs 3,650 from Rs 3,750 previously, as we move forward on an EPS basis from the fifth to eighth quarters. We maintain our buy rating,” Goldman Sachs said.

Jefferies said concerns about moderating urban consumer trends, as well as increased competition in the jewelry sector and a weaker product mix (partly due to LGD) would likely hold down Titan’s share price Company within a limited range.

Titan Company management has forecast a one-time loss of Rs 550 crore which will be spread over 2 quarters, of which Rs 290 crore was reported in Q2FY25. The reason for this impact is that although Titan maintains its entire gold inventory hedged, one of the gold hedging mechanisms, which is gold leased from banks, does not cover changes in the structure of import duties.

“Titan has about 40 percent of its gold inventory covered by gold leased from banks. Therefore, the sharp fall in the price of gold in India, caused by the reduction in import duties, is expected to result in a one-time drop in margins to the extent of the gold leased on the balance sheet. There is likely no impact to Titan’s FY26 or FY27 earnings,” Goldman Sachs said.

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