Titan Company gains on credit rating upgrade

Titan Company rose 0.96% to Rs 1506 after the ratings agency ICRA upgraded the company's long-term rating to [ICRA] AAA with stable outlook.

The credit rating issuer has also reaffirmed the short-term rating and the rating for the fixed deposit programme of the company.

ICRA said that the rating upgrade reflects ICRA's expectation that Titan Company (Titan) will be able to leverage its strong brands and market leadership position in the jewellery segment to drive sustained growth in revenues and accruals. The segment has shown high resilience to COVID-19 related disruptions and reported 16% YoY growth in Q3FY2021 (net of bullion sales).

The growth trends are expected to be further supported by continued expansion in store network as well as opportunities presented by large share of unorganized sector in the industry.

The ratings for Titan continue to reflect the company's leadership position in the organised jewellery, watches and eyewear segments, supported by its strong brands, integrated manufacturing capability, wide distribution and service networks and diversified product portfolio in terms of price points and styles.

Titan has a robust financial profile with strong cash accruals, moderate capital expenditure requirements, comfortable leverage metrics and strong liquidity.

The ratings, however, remains exposed to the regulatory risks and the competition in the domestic jewellery retail space, especially from regional players. Regulatory actions in the jewellery segment have impacted Titan in the past, both on the demand front through enhanced disclosure norms for customers, limits on cash transactions, etc, and on the supply side through curbs on imports, restrictions on gold on lease financing, etc.

However, ICRA draws comfort from the large size of the Indian jewellery industry, which combined with Titan's brand strength and the market shift towards organised players, translate into strong long-term growth prospects for the company.

The company also faces margin pressures in segments such as eyewear because of high competition, as well as in nascent segments such as perfumes and clothing (Taneira).

The stable outlook represents ICRA's expectation that Titan's revenues will continue to witness steady growth supported by strong brand presence, expansion plans and healthy demand in key product categories, especially jewellery.

Titan Company is engaged in making and selling watches, jewellery, eyewear and others. The Tata Group company posted a 10.85% decline in standalone net profit to Rs 419 crore on 17.64% rise in total income to Rs 7,324 crore in Q3 FY21 over Q3 FY20.

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