Titan tumbles 12.5% on rating downgrade

RBIs restrictions on gold imports also dragged the stock down

Shares of Titan Industries extended losses on Wednesday after brokerages downgraded the stock amid concerns Reserve Bank of India (RBI)’s restrictions on gold imports will affect the company’s earnings. The stock was down 12.5% at Rs 206.80 at 12:55 PM on Wednesday after falling 13% the previous day.

Among broking firms, Morgan Stanley downgraded the stock from equal-weight to under-weight, Religare cut its rating on the stock to hold from buy, UBS maintained its sell rating on the stock and CLSA downgraded Titan to sell from outperform
RBI recently said all gold imports for domestic consumption can be made only with 100% cash margin.

“Our worst fears have come true – policy changes have altered Titan’s business model, which may compel long-term investors to rethink their position,” said Morgan Stanley’s analysts led by Nillai Shah, while cutting the target price for the stock to Rs 198 from Rs 245.

Analysts expect the central bank’s move to impact the company’s return ratios due to higher working capital requirements.

“The additional fund requirements (~Rs 25bn in FY14) would stretch the company’s balance sheet, with a net debt of Rs 14.5 billion in FY14 as against net cash of Rs 11.4 billion in FY13,” said Religare’s Gaurang Kakkad and Prasad Dhake in a client note, while cutting its target price for the stock to Rs 225 from Rs 290.