Titan slumps 13% on lower-than-expected Q1 growth in jewellery business

In its quarterly update, the consumer goods company said high gold prices in June impacted its jewellery business.

Shares of Titan Company slumped as much as 13 per cent to Rs 1,094 apiece on the BSE in the opening deals on Monday after the company reported a lower-than-expected growth in jewellery business during April-June quarter (Q1FY20) owing to a tough macro-economic environment with consumption taking a hit.

With today’s fall, the stock slipped 19 per cent from its all-time high level of Rs 1,341 touched on July 1, 2019.

At 10:06 am, the stock was trading 12 per cent lower at Rs 1,099 on the BSE against 0.53 per cent fall in the benchmark S&P BSE Sensex. A total of 5.03 million shares of Titan traded on the BSE and NSE so far.

"The quarter witnessed a tough macro-economic environment with consumption being hit. Very high gold prices particularly in June also impacted growth in the jewellery industry. Against this background, the Company's growth particularly in the jewellery segment was lower than planned even though the gains in market share were sustained," Titan Company said in its quarterly update.

The consumer goods company of Tata Group said high gold prices in June impacted its jewellery business. "Revenue grew by a muted nearly 13 per cent in Q1'19 as sharp increase in gold prices dented consumer demand significantly in the month of June. Wedding jewellery and studded group witnessed decent growth in the quarter. Sales on the auspicious occasion of ‘Akshaya Tritiya’ were robust," it said. 

The company's 'Watches' segment, however, witnessed good sales momentum with revenue growth of 19 per cent. "The division had its semi-annual activation in both ‘Titan’ and Fastrack brands. Tech-enabled wearable has been the new driver for the division. In channels, E-Commerce, Trade and LFS channel remain the growth drivers for Watches division for June quarter," the press release added.

Sentiment took a further hit after news reports suggested global brokerage firms Credit Suisse and HSBC have downgraded the stock. Credit Suisse has downgraded it to 'Neutral' from 'Outperform' with the target price of Rs 1,250 per share. Stretched valuation and the near-term softness will cap upside, Credit Suisse said. It also added that Titan’s P/E (price to earnings ratio) has no room to further re-rate the stock.

In the first six months (January-June) of the current calendar year 2019, Titan Company had outperformed the market, by surging 44 per cent, as compared to a nine per cent gain in the S&P BSE Sensex.

HSBC has downgraded the stock to 'Hold' from ‘Buy’ and maintained the price target at Rs 1,300, according to news reports. With June quarter’s jewellery growth at 13 per cent, Titan's growth guidance of 20 per cent in 2019-20 is at risk, the brokerage said. HSBC believe September and December quarter are now adverse and elevated gold prices could lead to uncertain demand outlook.

BofAML, on the other hand, have 'Buy' rating on the stock with the target price of Rs 1,360. It said Q1 likely be a temporary blip and strong growth will resume. It believes any correction in the share price offers attractive investment opportunity, as per reports.

A slew of headwinds have hit consumption space hard and with no key triggers for demand revival visible in the near term, the pain is likely to persist. According to ICICI Securities, though the demand slowdown is widely acknowledged, valuations of consumer stocks have not correspondingly corrected, leaving a low margin for safety. The consumption sector is overvalued by 23 per cent relative to earnings visibility, the brokerage said in a report.  READ FULL REPORT HERE