Titan-Damas Deal: Here's Why Brokerages Are Cheering UAE Firm Acquisition

Brokerages maintained a bullish outlook on Titan Company Ltd., after it announced acquisition of a 67% majority stake in UAE-based Damas Jewellery through an all-cash deal. The acquisition is seen as a strategic move by the Tata group-backed firm to strengthen its presence in the Gulf Cooperation Council (GCC) region.

While Macquarie maintained "outperform" with a target price of Rs 4,150, Morgan Stanley retained its "overweight" rating with target price of Rs 3,876. Meanwhile, Citi maintained a "neutral" stance with target price of Rs Rs 3,800.

Macquarie highlighted that the acquisition of Damas Jewellery would bolster Titan’s presence in the Middle East. "The move paves the way for Titan's expansion across the Gulf countries and the broadening of the addressable market," it added.

Assuming a 4% funding cost for the acquisition at an enterprise value of AED 1 billion and Damas' profit before tax (PBT) remaining at CY24 levels, the brokerage estimates a 1% impact on Titan's earnings per share. "We seeks clarity on the likely synergies that could offset this and impact EPS accretion," it added.

Morgan Stanley noted that the acquisition of Damas International is at a reasonable valuation. "The acquisition of Damas is to be funded by a combination of debt, cash balances, and internal accruals," it noted.

The brokerage noted that the acquisition should help expansion across six GCC countries, targeting nationalities and ethnicities other than Indian diaspora. "As per management, the acquisition brings multiple synergies in retail network, talent, and the supply chain," it added.

Meanwhile, Citi noted that given Titan’s previous success in acquiring and scaling CaratLane, along with improvements in profitability, bodes well for the Damas acquisition. "We expect investors to see this investment as marginally positive," it added.

Citi's target price is based on 55 times Mar-27E EPS for the standalone business, set at Titan’s 10-year historical average. "As for many other leading consumption plays in India, absolute valuations remain high, supported by Titan’s strong medium-term business prospects driven by continued share gains," it added.

The brokerage also included an additional value for the company’s stake in CaratLane at 6 times Mar-27E sales, pegged around the multiples for other prominent digital plays.