Analysts' corner

Titan Industries & Gujarat Gas

TITAN INDUSTRIES
Reco price: Rs 203,
Target price: Rs 190
While Titan is unique due to a healthy balance sheet and free cash flows and is poised to benefit from retail sales opportunity as well as from the widespread tradition of buying gold jewellery, a one-year forward price/earnings of 27 times and volatile gold prices equate to an unfavourable risk-reward profile. Analysts expect growth momentum to slow, given the volatile and structurally higher gold prices, sharp diamond price inflation, a challenging macro-environment and increasing competition. Its margins (and ROEs) will moderate, given the costs of boosting demand (discounts, A&P, flexible exchange policy), limited mix enhancement in jewellery and watches, rising gold lease rate, cost inflation in watches and eyewear, exacerbated by a weak rupee and aggressive space roll-outs. Initiate with sell.

—Citigroup

GUJARAT GAS
Reco price: Rs 380,
Target Price: Rs 440
Gujarat Gas Company (GGAS) has lost 20 per cent of its market cap in the past three weeks, owing to lower-than-expected Q2FY12 results and the news that its parent BG is exiting from the company. The exit of BG is a negative, as GGAS benefited immensely from its parent's gas-sourcing abilities during immense gas scarcity. However, according to media reports, GAIL, GSPC and Adani are foraying to acquire BG's stake. With many interested parties, the prospect of an aggressive bidding is bright and valuations have become reasonable after the recent correction. Upgrade from reduce to an add rating.

—SBICAP Securities