Titan’s revenue hit by Coronavirus, here’s what this means for Rakesh Jhunjhunwala’s favourite stock

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Published: April 9, 2020 1:16:02 PM

A 5 per cent drop in revenue from the jewellery segment, a 20 per cent fall for the eyewear segment, and muted 1 per cent growth for the watches segment, that is how financials of one of India’s biggest apparel manufacturers will look like after being infected by the coronavirus pandemic.

Titan Company Limited in an update ahead of the results for the March quarter said that serious disruptions in operations throughout March have hit revenue growth for not just the quarter, but for the year as well.

A 5 per cent drop in revenue from the jewellery segment, a 20 per cent fall for the eyewear segment, and muted 1 per cent growth for the watches segment, that is how financials of one of India’s biggest apparel manufacturers will look like after being infected by the coronavirus pandemic. Titan Company Limited in an update ahead of the results for the March quarter said that serious disruptions in operations throughout March have hit revenue growth for not just the quarter, but for the year as well. 

According to the update provided by Titan, revenue growth for the jewellery segment was inching up and growing by 16.5 per cent in January and February only to pare off all gains and register a de-growth in the quarter based on lost sales in the month of March. “The diamond studded activation in the quarter did well and wedding jewellery sales continued to be good till the disruption,” the company said. Titan has closed all its retail stores post the junta curfew and is not looking to cut employee costs while ensuring that all employees direct or indirect get paid on time.

Titan has also suffered significant damage in the eyewear segment where the growth for the march quarter is expected to tank by 20 per cent. The already struggling segment registered a flat growth in the months of January and February but the trade disruption caused in March hampered the revenue. However, the watches and wearables segment of Titan saw registered revenue growth although only of 1 per cent. “Ecommerce was the fastest growing channel for both Q4 and full year. Retail sales in Large Format Stores or LFS (Shop-in-shops) also grew well aided by Valentine activation sales and new product introductions,” the company said. Other businesses, that include the brand’s fragrance line, grew robustly in the March quarter helped by eCommerce channels. 

Despite registering growth in other business operations and the watch segment, Titan itself is painting a grim outlook as the majority of the revenue generated for the company is driven by the Jewellery and Eyewear segment. In the December quarter of the previous fiscal, jewellery and eyewear accounted for over 89 per cent of Titan’s revenue. While profits were mainly driven out of the Jewellery division.

Outlook for Titan

With a muted outlook for the March quarter and the fiscal year 2020-21, what does this mean for the share price of Titan Company, which is often touted as ace investor Rakesh Jhunjhunwala’s favourite stock. Currently, the scrip is trading with gains of over 9.2% at Rs 998 per share. The stock has seen a fall of 14 per cent since the beginning of this year. 

“The COVID-19-led disruption was expected to strongly impact business performance, especially due to the Titan brand’s extensive presence in malls, which were shut down even prior to the lockdown,” said brokerage and equity research firm Motilal Oswal, while maintaining a neutral outlook on the stock. However Motilal Oswal has pegged a target price of Rs 1,320 on the share. The brokerage firm thinks that foot-fall to reach the pre-coronavirus period will take time across malls in India which is a negative for the company. Singing to the same beat, is brokerage firm Emkay Global, predicting a recovery for Titan to start as early as the second quarter of the current fiscal. “Post the recent correction, we find Titan attractive given its stronger franchise and balance sheet providing ability to weather the storm vs. its peers, possible acceleration in market share gains post normalcy and pent-up demand in jewellery which may restrict further downsides to our FY22 forecasts even in case of an extended lockdown,” Emkay Global said in a research report. 

Earlier this week, prior to the update by Titan Company Limited, Kotak Institutional Equities, estimated EBITDA of the firm to drop by 12 per cent in the March quarter while profit after tax was seen to slip 28 per cent. Despite that Kotak Institutional Equities had a buy call on the stock, assigning a fair value of Rs 1,260 per share.

Rakesh Jhunjhunwala’s holding

According to the information available on the BSE Sensex website, ace investor Rakesh Jhunjhunwala along with his wife, Rekha Jhunjhunwala hold a 6.69 per cent stake in the company, as of December 2019. With the share price surging during the day’s trade to Rs 985 per share from its previous closing of Rs 913, the Jhunjhunwala’s are expected to have pocketed gains to the tune of Rs 445 crore. 

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