Titan Upgraded To ‘Buy’ By UBS; Target Price Raised, Stock Seen Poised For Rebound

UBS has upgraded Titan Company Ltd. From Neutral to “Buy” with target price hiked to Rs 4,700 from earlier Rs 3,600.

UBS describes Titan as a structural winner in the jewellery industry. The brokerage believes Titan is on the cusp of a major rebound, supported by its resilient performance despite gold price volatility.

The brokerage noted that, “we view Titan as an impressive player in the jewellery industry, with strong brands, consumer trust and scale. Fear of rising competition and the impact of lab-grown diamonds (LGDs) have been overhangs, although a UBS Evidence Lab survey suggested the LGD threat is manageable, while we think Titan's value proposition remains competitive. On its attractive valuation, we expect an earnings rebound”.

UBS further added that, after two years of stagnation, it believes that Titan's shares are positioned for a strong rebound. Titan has delivered 20% jewellery revenue growth in the past two years despite a gold price spike. With a jewellery margin reset (in its quest to keep a competitive gold price for consumers) in the past, the brokerage foresees a major earnings. “In our view, LGDs do not pose an immediate threat and Titan's strategy of waiting and watching LGDs is sensible. Titan's valuation is appealing (6% discount to five-year-average PE) and our scenario analysis suggests upside potential of 25%,” the brokerage said.

The brokerage also revised it’s earnings estimates and valued Titan at 60.9 times NTM PE, on the basis that its valuation is quite tenable and appealing. As Titan’s earnings rebound, UBS expects its multiple to rise towards the five-year average.

However, the brokerage also noted that, “key downside risks to our Buy rating include a sharp gold price rise, along with a rising intensity in price competition that weighs on growth and margins.”