Citi Research cautious on Titan Industries

Citi Research has released a research report on Indian Retail Jewellery industry. As part of the Jewellery Retail, Citi has also covered Titan Industries Ltd.

Citi has revised the target price to Rs275 based on 27x FY14E EPS, slightly above the stock's 5-year historical average P/E (5 / 10 yr average forward P/E of 25x / 26x). Citi has ascribed a high multiple of 27x given Titan's superior positioning in all categories, improving mix and management background, but a further re-rating from current levels is unlikely because same-store sales growth remains tepid and the extent of margin expansion near term appears limited. The multiple is perhaps more than appropriate given the underlying consumer sentiment & potential risks to Titan's balance sheet / business model. From a relative P/E perspective, Titan trades around 2.1x to the BSE Sensex vs. last 5-year average of ~1.6x and peak of ~2.4x.

Citi has said that there are risks to the upside because of stability in gold prices could buttress volumes / profitability, Improvement in the macro bodes well for same-store sales growth, INR appreciation could aid margins, esp. in watches & eyewear. The stock could benefit in case the govt / RBI softens its stance on gold leasing / procurement norms. Downside risks: a) Intensifying competition & fragmentation; and b) Working capital may deteriorate given the aggressive space expansion and need to maintain high-cost inventory. Implementation of the new gold leasing norms / higher gold leasing rate could adversely hurt Titan's profitability.

Source : Equity Bulls

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