Rakesh Jhunjhunwala gets even richer, his favorite stock Titan surges 6%; Should you invest in this jewellery maker

While the Indian benchmark indices Sensex and Nifty 50 were on hotbed today, the share price of Titan Company turned out to be among the favorite stocks of investors in which buying was so heavy that the price surged by over 6% on exchanges. Such upbeat sentiment on Titan stock price was despite the company’s mixed September 2018 quarter (Q2FY19) result, which was presented last week. The company surpassed analysts estimates when it came to top-line growth, however, missed expectations in terms of bottom-line growth. Interestingly, Titan is also among the most favorite stocks of ace investor Rakesh Jhunjhunwala.

Riding on the back of Titan’s share price performance, the big bull currently sits on a hefty pile of money. Jhunjhunwala has been so impressed by the performance and outlook that he has also hiked its holding in Titan, indicating that he sees the company performing very well in coming months ahead. So, if you invest today in this company, Titan can actually become a money making magnet for you. Analysts are very optimistic on Titan, and hence have given a buy call. It’s all about investing in the right moment and grabbing the opportunity, and Titan is sure one stock to eye, considering the way it dominates the jewellery sector.

During Q2FY19 result, Titan posted standalone net profit of Rs 314.38 crore, which was gradually up by 2.86% compared to Rs 305.64 crore recorded in the corresponding period of previous year. However, the Q2FY19 net profit was down by 9.96% as against Rs 349.17 crore witnessed in preceding quarter. A Bloomberg poll of analysts had predicted net profit to come in at Rs 367 crore this quarter.

Coming to revenue from operations, it stood at Rs 4,353.39 crore in Q2FY19, increasing by 26.59% versus Rs 3,438.96 crore in Q2FY18 and sequentially up by 1.98% from Rs 4,268.56 crore in Q1FY19. The poll had estimated revenue of Rs 4,140 crore in current quarter.

Today, following the result announcement, Titan touched an intraday high of Rs 898.90 per piece resulting in overall gains of 6% on exchanges. However, at around 1439 hours, the company was trading at Rs 890.70 per piece above Rs 42.70 or 5.04% on Sensex.

Should you invest?

In Motilal Oswal’s view, lower-than-expected 2QFY19 margins have led us to cut our FY19/20 EPS estimate by 3.3%/2.5%. Nevertheless, Jewelry business growth prospects remain robust. Moreover, Watches and even Eyewear now have started contributing to growth.

Krishnan Sambamoorthy and Vishal Punmiya, Research Analysts at Motilal said, “We believe that premium valuations are fully deserved for a business that has perhaps the best revenue growth potential in the large-cap FMCG/retail space (20% CAGR growth in Jewelry – its largest segment – in the next five years).”

The duo added, “The healthy outlook on margins led by operating leverage also provides visibility of strong earnings growth. We, thus, maintain our Buy rating with a target price of INR1,045, based on 47x Sep’20E EPS (10% premium to three-year average P/E).”

On the other hand, Abneesh Roy and Alok Shah analysts at Edelweiss Financial Services said, “We envisage Titan to extend its growth run led by market share gains, rising share of studded jewellery, new launches and retail expansion. Margin expansion levers such as higher share of studded (jewellery), in-house frame manufacturing (eyewear), cost optimisation and operating leverage are in place.”

Titan’s management is confident of the division posting >25% YoY revenue growth in Q3FY19; and (ii) 17.3% YoY growth in watches coupled with EBIT margin touching 18% (expects to exit FY19 with ~15% EBIT margin owing to new launches and higher ad spends).

Following which, analysts at Edelweiss added, “At 50x FY20E EPS, we arrive at TP of Rs 990. We maintain ‘BUY/SO’. At CMP, the stock is trading at 42.9x FY20E EPS.”

If we take the current market price of Titan and compare it with the expectations, then company is set to grow between 16% to 17%.

It needs to be noted that, Titan has already touched an all-time high of Rs 1,006 per piece on Sensex, which reflects the potential of the company. Hence, when Titan stock is below Rs 900-mark, it comes as a best bet for gaining hefty on this company.

Jhunjhunwala, who has invested heavily in Titan, has been very positive on Titan, which is why he even raised his holding in the company by 0.06% in September 2018 quarter. And this was despite the fact that during this month there was a bloodbath across Indian markets, even including Titan that the company had touched an all-time low of Rs 731.70 per piece. For the ace investor, this was an investment strategy to buy more of Titan.

Currently, the Dalal Street king holds about 7.12% stake in Titan, with 63,251,220 equity shares worth Rs 5,351.10 crore, as per Trendlyne.com.

Hence, if you are planning to invest in equities, and are looking at short term gains, then Titan is your best bet. However, it needs to be noted that, the company is set to reach even higher levels, which makes it best long term investment.