The Titan Industries has underperformed since Q2 FY14 results, which painted a weak picture of demand outlook for Jewellery and our recent interaction with Jewellery stores and management corroborates that festive demand in Q3 has been very weak, even after discounting the fact that coins sales were absent this festive season (about 15% of total jewellery sales in the festive season).
This picture doesn’t bode well for the revenue and the profit growth in the short term. Regulatory uncertainty too remains a key dampener as well.
Notably, there is no progress to date on RBI giving Titan permission to hedge gold price risk internationally. Titan too so far has not made any material progress to arrange for its own export of Jewellery to meet part obligations for 80:20 rule, that may have enabled Titan to import gold using its direct import licence.
Our 12-month target price of R260 implies 14.3% potential return and we ,therefore, remain neutral but add a volatility flag.
We have revised our near term estimates given the weak demand conditions and reduce our target price to Rs 260 from Rs 280.