Titan shares drop 4% on lower than expected Q2; here’s what brokerages say

Shares of Titan fell nearly 4% in early trade on Wednesday after the Tata Group company reported lower than expected earnings in the September quarter. The sentiment was further dented after the company, which manufactures a range of lifestyle products including jewellery and watches, after the management reduced its jewellery EBIT margin guidance to 11-11.5% for FY25, from the 11.5-12.5% estimated earlier.

Reacting to Q2 numbers, Titan Company shares opened lower at ₹3,154.95, down 2.4% over the previous closing price of ₹3,233.05 on the BSE. In the first hour of trade so far, the Tata Group stock declined as much as 3.6% to ₹3,113.65, while the market capitalisation slipped to ₹2.8 lakh crore.

The share price of Titan moved in a narrow range in the calendar year 2024, with the counter touching its 52-week high of ₹3,885 on January 30, 2024, and a 52-week low of ₹3,059 on June 4, 2024. The stock has given a negative return of 3% to its shareholders in the last one year, while it has corrected nearly 14% in the calendar year 2024. In the past six months, the counter lost 3.5%, while it fell nearly 12% in a month.

For the July-September quarter of the current fiscal, Titan reported a 25% decline in standalone profit at ₹705 crore as compared to ₹940 crore profit in the year-ago period, primarily due to a weak demand in its studded jewellery business. The revenue, however, grew 24.2% to ₹12,458 crore in Q2 FY25 from ₹10,027 crore in the year-ago period. The Earnings Before Interest and Tax (EBIT) fell 17.5% to ₹1,128 crore from ₹1,367 crore in the year-ago period.

Brokerages views on Titan Q2 results

ICICI Securities

The brokerage has maintained ‘HOLD’ rating on Titan with lower revised target price of ₹3,100 as ₹3,500 estimated previously. The brokerage says that Titan's domestic jewellery business revenue growth had a strong revival (25% YoY), driven by improved industry demand conditions (though likely to underperform peers) for gold jewellery due to customs duty cut while higher value studded segment demand was under pressure due to global price uncertainty, leading to 30% reduction in studded share.

“Global price uncertainty in high-value studded segment is another headwind. We like management’s preference of growth over margins in the near term. That said, both growth and margin are important for its valuations,” it says.

Motilal Oswal

The brokerage house has reiterated its ‘BUY’ rating with a revised price target of ₹3,850, saying that there is limited pressure going ahead. It has cut earnings per share (EPS) estimates by 5% each for FY25 and FY26. 

“With the jewelry industry seeing faster formalisation, we believe that Titan will continue to benefit, driven by store additions, multi-format presence, better designs and customer understanding, and a strong recall of trust. Although the margin trajectory has been weak for the last 4-5 quarters, we expect limited pressure going ahead,” it says in a report.

As per the report, the EBITDA margin has been under pressure during FY24 and H1 FY25, owing to a lower studded mix. It will be critical to monitor the margin outlook amid intensifying competition. The non-jewelry business is also scaling up well and will contribute to growth in the medium term. The business currently accounts for 13% of revenue and 12% of EBIT, it says.

Nuvama

The brokerage has also maintained a ‘BUY’ call on the stock with an upgraded target price of ₹4,182, from ₹3,955 earlier. “Given strong top-line growth, including from bullion revenue, we are revising up FY25E/26E revenue by 7.3%/4.1%. Margin pressure though forces our hand to adjust our estimates to the lower end of the guidance, resulting in a 5%/8.8% reduction in our PAT estimate for FY25/26.”

Emkay

The agency has also retained ‘Buy’ rating on Titan with a target price of ₹4,050, saying that evolving lab-grown diamond (LGD) space and margin risks amid high competition will be key monitarables. “Margin miss in Q2 was due to drop in studded mix and higher gold coins/gold-component in studded, leading to reduction of jewelry margin outlook to 11-11.5% in FY25 (vs 11.5-12.5%) and 7-8% cut in our earnings. But, sustained growth trends/long-term execution keeps us positive on TITAN with a revised TP of ₹4,050.”

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)