Demand intact amid high gold prices and Coronavirus: Mr S. Subramaniam,Titan

Update on the Indian Equity Market:

Amid rising concerns over Coronavirus becoming a pandemic, major global indices witnessed heavy selling with markets falling in the range of 2.5- 4.5%. India was no exception to this as the Nifty fell 420 points (-3.6%) to close at 11,202. FIIs continued to be net sellers as they sold Rs 30,648mn on Friday. The depth of weakness in Friday’s market was such that 39 out of 50 stocks in the index fell more than 2% with VEDL (-12.8%), TATAMOTORS (-10.9%) and M&M (-8.0%) being the biggest losers. Only two stocks in the index, MARUTI (0.2%) and IOC (0.1%) survived the day on the positive side. All the sectoral indices fell in the range of -2.4% (FMCG) to -7.3% (METAL) with -5.3% (IT) and MEDIA (-4.9%) being the other two biggest losers.

Excerpts from an interview with Mr S. Subramaniam, CFO- Titan, published in CNBC TV-18 on 27^th February 2020.

• Gold prices in India have hit record high levels as investors tried to shift from risky asset classes to safe assets. Mr Subramaniam said that he is not sure if there is any major impact on consumption due to the increase in gold prices and Coronavirus.
• About Coronavirus, he said that the impact on the business due to the virus is extremely remote or small. Although the company relies on some supplies for watches from China, as of now the stock situation is not deteriorating.
• The increase in the price of gold has not affected the demand for the company. He cited two possible reasons for this; first, people are now looking at gold as something which will be going up over time and second, there’s wedding season going on in the country.
• In January, he gave guidance for the revenue growth around 11-13% for the quarter. He reiterated the target again in the interview as he is confident of achieving the target.
• He talked about the demand situation in the current market. It is quite expensive to buy gold at these elevated prices. At the same time, because of issues like Coronavirus and microeconomic global situation, people may start looking at gold as an investment. As a result, there may be a pick-up in demand on the back of ETF gold coins rather than the jewellery side. Jewellery is still driven by festivals and customary requirements.
• In the eyewear and watch business, the demand situation was not bad in January. It is still low but not as bad as it was in December. He expects a reasonable quarter for both these segments. He stated that the demand situation is possibly at the bottom and the company might witness improvement in the future.

Consensus Estimate: (Source: market screener website and investing.com websites)

• The closing price of Titan was ₹ 1,254/- as of 28-February-2020.  It traded at 70x/ 55x/ 46x the consensus earnings estimate of ₹ 18.0/ 23.0/ 27.5 for FY20E/ FY21E/ FY22E respectively.
• The consensus target price for Titan is ₹ 1276/- which implies a PE multiple of 46x on FY22E EPS of ₹ 27.5/- .