Titan shares rise nearly 10% in morning trade on Wednesday after global brokerage firm CLSA upgrades it to ‘buy’

Shares of TitanBSE 7.52 % Company rallied as much as 9.5 per cent in morning trade on Wednesday after global brokerage firm CLSA upgraded the stock to ‘buy’ from ‘underperform’ earlier and raised its 12-month target price to Rs 500, which translates into an upside of nearly 30 per cent.
Tata group firm Titan on Tuesday reported a 13 per cent increase in December quarter standalone net profit at Rs 255.75 crore.
The Asia-Pacific brokerage upgraded the stock to ‘buy’ as December quarter numbers displayed that concerns post demonetisation were unfounded, which boosted investor sentiment.
The jewellery business gained market share from unorganised sector, which saw higher impact of the cash ban, said the CLSA note. The watches business saw an EBIT boost led by low margin base, and decent revenue growth.
The company had posted a standalone net profit of Rs 226.15 crore for the same quarter of last financial year, it said in a BSE filing.
However, deceleration in demand post-January, and much higher tax rate under GST are among key risk factors.
The jewellery business gained market share from the unorganised sector, said the Credit Suisse note. The global brokerage firm has upgraded earnings estimates by 8-10 per cent, but valuations at 34 times FY18E leave limited room for upside.
Income from watches stood at Rs 508.26 crore, up 5.1 per cent from the year-ago quarter. The jewellery business had recorded a growth of 15.4 per cent with an income of Rs 3,255 crore, it said.
UBS still maintained a neutral rating on Titan with a 12-month target price of Rs 350. The company saw 370bps EBIT margin expansion in watches as product mix improved, but the jewellery margins remained flat on a year-on-year basis.
Another brokerage firm, Credit Suisse, maintained a neutral rating on Titan post Q3 results and raised its 12-month target price to Rs 425 from Rs 340 earlier.
UBS is of the view that incremental gains post demonetisation maybe difficult to sustain. It is still uncertain whether non-wedding demand would return in a hurry. The global brokerage firm expects a near 10 per cent rebound for Tanishq’s diamond jewellery volume in FY17.