May27 , 2022

Rakesh Jhunjunwala stocks: One-off expenses hit Jhunjhunwala’s Rs 10,700 cr stock bet in Q4. What’s next?

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NEW DELHI: Titan Company’s 7 per cent drop in net profit in March quarter was largely due to Rs 120 crore expenses related to voluntary retirement and ex-gratia bonus. The quarter was also affected by operating challenges and gold price volatility, leading to flat revenues and weak margins on negative fixed cost leverage.

The management does see a strong trend, thanks to uninterrupted wedding and festive sales ahead after two years of lockdowns. Analyst price targets vary, suggesting single-digit potential upside of up to 28 per cent ahead.

JPMorgan said Q4 print has led to a pause in the earnings upgrade cycle, even as it took note of healthy demand momentum in April. Revenue growth trajectory will be key for the share price performance, it said while suggesting a neutral rating on the stock with a target of Rs 2,575.

ICICI Securities said Titan stock has seen a time correction in the last six months, and correctly so.

“We believe it was in a zone where the valuation was stretched, expectations were high and the company had to materially surprise (for further up move). We do note that Q3 was a blockbuster quarter but that happened for most discretionary categories. The Q4 outcome was just about decent, in fact weaker than initially expected,” it noted while suggesting a target of Rs 2,550.

That said, the brokerage said its optimism stays intact as Titan is one company where the capabilities to translate the opportunity to earnings is high.

Ace investor Rakesh Jhunjunwala and his better half Rekha owned 5.1 per cent stake in the Tata Group firm, which is worth Rs 10,703.90 crore as of Monday.

The jewellery maker said its standalone profit for the March 2022 quarter declined 7.18 per cent year-on-year to Rs 491 crore from Rs 529 crore. Revenue from sales of operations for the quarter fell 3.46 per cent to Rs 6,749 crore from Rs 6,991 crore. The adjusted margin (before exceptional items) came in at 13.1 per cent.

The jewellery business registered a 4 per cent YoY drop in revenue to Rs 6,132 crore from Rs 6,397 crore in Q4FY21. Jewellery’s EBIT margins (adjusted for inventory gains) was flat YoY at 11 per cent for the quarter.

The watches and wearable business reported a 12 per cent increase in the income to Rs 622 crore from Rs 555 crore earlier while eyecare business reported a 6 per cent YoY rise in revenue to Rs 134 crore.

Edelweiss said in addition to weak sales in the jewellery segment, margins, particularly in non-jewellery undershot, which drove a miss. Ebitda came in 18 per cent below estimate, it said, adding that there are uncertainties on margin sustainability and demand given gold price volatility.

“Except for this quarter (which includes one-offs), Titan has delivered on margins. And we do not see incremental developments to believe margins will contract ahead. Even on growth outlook, April demand has already recovered while price-related volatility in the past has evened out soon. Hence, we maintain our estimates and target 65 times FY23 Ebitda , which yields a target price of Rs 3,065; retain ‘BUY’. Titan remains among our top picks,” it said.

Emkay Global said Q4 profit was 15 per cent lower than its estimates, largely due to expenses related to voluntary retirement/ex-gratia bonus. Adjusted for this, Emkay said Ebitda margin was in line with its estimates but nearly 150 basis points lower than consensus estimates.

“In anticipation of a strong season and low base, working capital has more than doubled to Rs 6,200 crore, leading to a negative FCF of Rs 1,000 crore in FY22. But, we expect it to normalise in FY23E. Store additions were robust, leading to 11 per cent growth in retail space in FY22,” Emkay said while lowering its target on the stock to Rs 2,775 from Rs 2,900 earlier.

Motilal Oswal Securities said the stock’s near-term multiples appear expensive, but its long runway for profitable growth warrants premium multiples.

Titan, it said, has a strong growth runway, given its market share of less than 10 per cent and continued struggles faced by its unorganised and organised peers.

“Its medium-to-long-term earnings growth visibility is nonpareil. Despite the volatility in gold prices and Covid-led disruptions, its earnings CAGR has been stellar (24 per cent) for the past five-years ending FY22. We expect this trend to continue, with over 20 per cent earnings CAGR in the next couple of years,” it said while suggesting a target of Rs 2,900 per share.



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