Gold should be viewed as an investment – S Subramaniam, Titan
Update on the Indian Equity Market:
On Thursday, the Monetary Policy Committee (MPC) of RBI decided to keep the policy repo rate unchanged and persevere with the accommodative stance as long as necessary to revive growth, while ensuring that inflation remains within the target.
The broad market index, Nifty50 ended the day marginally high. PSU Bank (+2.6%), Media (+1.6%) and Pharma (+1.3%) were the top gainers while FMCG (-0.6%), IT (-0.4%) and Realty (-0.3%) were the sectoral losers for the day. Amongst the stocks, Eicher Motors (5.4%), IndusInd Bank (+4.6%) and Zee Entertainment Enterprises (+3.9%) were the biggest gainers. Tata Motors (-2.9%), Cipla (-2%) and Titan (-1.6%) ended the day in the red.
Gold should be viewed as an investment – S Subramaniam, Titan
Excerpts of an interview with S Subramaniam, CFO, Titan. The interview was published in Livemint on February 6, 2020:
- Titan recently released the 3QFY20 result. The numbers were largely in line with the street estimates and margins were better than expected.
- Although the company is definitely gaining market share, it has been a bumpy ride. The months of October and November were pretty good but December was tough, so the market is a little shaky.
- The CFO is hopeful of doing well in the coming quarter as well, the initial guidance of 11-13 percent growth in the jewelry segment has been maintained.
- Growth in the jewelry business was guided at 2.5x by 2023, which may be at risk, considering that kind of growth is not happening. People looking at gold as an investment in addition to it being a jewelry item would help achieve that kind of growth.
- The industry has been in pretty bad shape for a variety of reasons. The month of December saw a surge in the gold prices, which did not help. A lot of the jewelers are undergoing financial crises with a pretty bad liquidity situation. Those with adequate funds can possibly do better. Else this pain will continue industry-wide for some more time.
- Moving to other business segments, the watch segment, World of Titan has witnessed 11 percent growth in the quarter. Although the growth was phenomenal, opportunity was missed on the trade channel because of stocking and in the e-commerce channel. 10 percent of the revenues come from the e-commerce segment which has been slowing down.
- Margins would be an area of concern for the watch segment. It is expected to perform better including in the next quarter (Q4).
- The expectation is that margin-wise, the company performance would be better in FY20 than FY19.
- Growth has been challenging for the eyewear segment. The profitability challenges continue, which need to be addressed.
Consensus Estimate: (Source: market screener and investing.com websites)
- The closing price of Titan was ₹ 1259/- as on 6-February 2020. It traded at 69.6x/ 54.5x/ 45.6x the consensus earnings estimate of ₹ 18.1/ 23.1/ 27.6 for FY20E/ FY21E/ FY22E respectively.
- Consensus target price of ₹ 1204 /- implies a PE multiple of 44x on FY22E EPS of ₹ 27.6 /-