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Shares of Titan Company fell nearly 11 percent on Tuesday after Morgan Stanley and Credit Suisse downgraded the stock.
Shares of Titan Company fell nearly 11 percent on Tuesday, the biggest one-day fall since 2013, after its Q1 updates indicated a muted growth for jewellery business on the back of higher gold prices. The sentiment was also hit after rating downgrades by Morgan Stanley and Credit Suisse.
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Global brokerage firm Morgan Stanley has downgraded the firm to 'equal-weight' from 'overweight' with a target of Rs 1,300 per share. Meanwhile, Credit Suisse downgraded the stock to 'neutral' from 'outperform' with target unchanged at Rs 1,250 per share.
The stock fell as much as 10.8 percent to Rs 1,116.20 per share on the BSE. At 9:25 AM, the stock was trading 10 percent lower at Rs 1,126.75 per share. In comparison, the BSE Sensex was trading 0.6 percent (224 points) lower at 38,496. The stock has risen over 52 percent in the last one year as compared with 10 percent gain in Sensex.
The quarter witnessed a tough macro-economic environment with consumption being hit, Titan said in its press note on Monday. Very high gold prices, particularly in June, also impacted growth in the jewellery industry. Against this background, the company's growth, particularly in the jewellery segment, was lower than planned even though the gains in market share were sustained.
According to Morgan Stanley, the downgrade is not on the basis of earnings but the brokerage sees less room for any more positive surprises in the coming quarters.
"Titan remains one of our favourite long-term plays on urban discretionary consumption growth in India. However, following the strong trailing performance, we are now reluctant to push multiples beyond current levels. We see balanced risk-reward at the current stock price," the brokerage explained.
Meanwhile, Credit Suisse believes that the valuations are stretched and nearer upside will be capped. It added that impact of the gold price should not last beyond a few months. Jewellery business of the company has seen a slowdown as a jump in gold prices affected the consumer demand.
Going ahead, the brokerage is positive on the medium-term and would look for a better entry point for the stock. It also cut its earnings estimate by 2 percent.
Morgan Stanley recommends investors to shift to companies with high operating leverage. It prefers Jubilant Foodworks over Titan in the current scenario.
Morgan Stanley forecasts F20 revenue, EBITDA, and PAT growth of 20 percent, 25 percent, and 20 percent, respectively. Overall, operating margin is expected to expand 50 bps, driven by 30 bps expansion in the jewellery business and 100 bps expansion in the watch segment. Against the backdrop of relatively sluggish overall consumption growth in India, Morgan Stanley sees a low probability that earnings can meaningfully exceed their estimates.
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