Titan share price falls 3% a day after Q1 results; experts give thumbs up but there are concerns too

Titan Company's share price opened 1.3 per cent lower at ₹2,940 on BSE on Thursday and soon expended losses to almost 3 per cent, a day after the company reported its June quarter (Q1FY24) scorecard which showed a dip in net profit and margin. The stock traded 2.28 per cent lower at ₹2,910.50 around 10:20 am.

Titan's share price has jumped about 25 per cent in the last one year, significantly outperforming the benchmark Sensex which has gained about 13 per cent in the same period.

The stock hit its 52-week high of ₹3,211.10 on July 7 this year and its 52-week low of ₹2,268.90 on February 2 this year on BSE.

Titan Q1 Results: Titan Company reported a revenue growth of 19 per cent for Q1FY24. The total income for the quarter on a standalone basis stood at ₹10,306 crore, while the consolidated total income reached ₹11,070 crore mark.

The EBIT for the quarter showed a slight decline of 2 per cent on both standalone and consolidated levels. The PBT before exceptional items decreased by 4 per cent to ₹1,024 crores and 7 per cent to ₹1,002 crores for standalone and consolidated figures, respectively.

The PAT also saw a dip of 2 per cent to ₹777 crore on a standalone basis and 4 per cent to ₹756 crore on a consolidated basis.

Read more: Titan Q1 Results: Revenue up 19% FY23-24, EBIT declines 0.7% YoY to ₹1,103 crores

A compelling option in the discretionary sector for long term

Most brokerage firms retained their earlier views on the stock after Titan's June quarter numbers.

Brokerage firm Motilal Oswal Financial Services maintained its buy rating on the stock with a target price of ₹3,325.

"Titan’s brand-building initiatives across segments, increasing customer base, store expansions and development in international markets continued to be impressive. There are no material changes to our FY24 and FY25 forecasts," said Motilal Oswal.

"Its positive growth outlook along with favourable industry trends and a strong balance sheet make it a compelling option in the discretionary sector. Titan has an impressive track record of outperforming its peers as well as exceptional long-term growth potential, all of which justify its premium valuations," said Motilal Oswal.

Motilal Pointed out that the gradual recovery in the studded ratio is expected to support improved gross margin in the future.

Nuvama Wealth Management also has a buy call on the stock with a target price of ₹3,425, citing Titan remains one of the top picks of the brokerage firm.

"We are trimming margins, but keeping it in the lower end of guidance (12.5 per cent); our FY24 EPS (earnings per share) hence, edges down only 4 per cent. We value Titan at 60 times Q1FY26E PE (price-to-earnings ratio), which is a five-year average. Titan remains among our top picks," said Nuvama.

Among global brokerage firms, as reported by CNBC-TV18, Morgan Stanley maintained an 'equal-weight' stance on the stock with a target price of ₹3,190. HSBC maintained a 'buy' call on the stock with a target price of ₹3,580 while Jefferies maintained a 'hold' call with a target price of ₹2,650. Jefferies said Titan's margin surprised negatively, driving a sharp miss on earnings versus estimates.

Rich valuation, margin pressure can spoil the party

Brokerage firm Phillip Capital believes near-term margin pressure and rich valuation of the stock offer little scope for a significant upside in the stock price.

The brokerage firm has downgraded the stock to 'neutral' from 'buy'.

"We downgrade Titan to 'neutral' from 'buy' with a revised target price of ₹3,100 (60 times June-25 EPS, 16 per cent EPS CAGR over FY23-26) as near-term margin pressure (expect nearly 100 bps YoY) in FY24 and rich valuations (61 times FY25 EPS) are most likely to limit any meaningful stock price appreciation," Phillip Capital said.

The brokerage firm expects Titan's EBITDA margin to slip to 11.5 per cent in FY24 versus 12.5 per cent in FY23 owing to hefty non-recurring diamond inventory gains sitting in the base year and increased efforts on driving market share gain.

Besides, Phillip Capital pointed out that gold price premium rationalisation and moderation in consumer demand on account of higher gold price and pent-up demand being on the back burner as Covid-led tailwinds ebb away may also drag Titan's EBITDA margin.

"Rich valuations (61 times FY25 EPS) do not leave scope for error in a highly volatile demand environment," said Phillip Capital.

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.