Watch-to-jewellery maker Titan Co. Ltd. may emerge as the key beneficiary of the Indian government's reform policies aimed at the jewellery industry, global brokerage house Morgan Stanley said in its latest report.
While the broking firmed retained its “Overweight” rating, it said the stock no longer looks cheap considering historical valuations. The stock's 12-month forward price-to-earnings ratio is currently trading at a 12 percent premium to its five-year average, Morgan Stanley said.
The brokerage house upped its target price to Rs 635 from Rs 550 earlier.
Bull/Bear Case
Morgan Stanley pegged a three-year price target of Rs 870 on the stock, subject to the success of their eyewear business and the policy action remaining favourable.
On the flipside, it expects the stock to drop towards Rs 380 in its bear case scenario—discretionary spending slows, market share lost to unorganised segment and government continues to constrain gold demand.
Key Value Drivers For Overweight Rating:
- Revenue growth and margins in the watch business
- Impact of macro climate, policy action and gold prices on the jewellery business
- Investment in new business such as eye-wear retailing, and mass market gold retailing
Potential Catalysts:
- Policy action by RBI and/or government
- Same-store growth (SSG) trend in the jewellery business improves to mid-high teens
- Volume growth and margins in the watches business
Risks To Achieving Price Target:
- Government's policy action that has an adverse impact on Titan's business model
- Unorganised market remains resilient even after implementation of GST
- Further slowdown in the macro-economic environment and deteriorating product mix
Also Read: CLSA Upgrades Titan After GST Council Finalises Tax Rate On Gold Jewellery
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