How Titan lost Rs 5,300 cr in a jiffy

After touching a new all time high of Rs 237.45 in September, Titan Industries has been on a steady slide. The stock today is one of the biggest losers among mainline stocks, falling by nearly 5 percent at Rs 176.50, a loss of Rs 5,300 crore in market capitalisation.

What has changed for the company since the beginning of the festive season in September?

Rising gold prices and a falling rupee have impacted margins of the company’s jewellery business. Further, the watch business has been impacted by higher cost of imports, while the eye wear business is facing head-on competition from Reliance Vision Express.

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In a recent note on the company, Edelweiss said that the jewellery segment is likely to remain subdued in the medium term. The note also adds that the recent acquisition of Favre Leuba will help the company penetrate the high-end segment. Edelweiss, however, warns that rupee falling below Rs 50 will impact margin of the watch business.

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Slowdown in customer spend and end of festive season is likely to impact the company’s performance in the medium term.

_Firstpost_ had earlier reported that the stock’s valuation is too expensive because of the very strong co-relation between the price of gold and the performance of Titan shares. Brokerage Citi initiated the coverage on Titan with a “sell” rating, defying consensus with a target price of Rs 190.

The jewellery business is the key driver of Titan’s overall profitability, contributing 77 percent of Titan’s revenues and 69 percent of operating profits in the year ended March 2011. The correlation between gold prices and stock price could, however, diminish as diamond jewellery sales increase and other segments, like eyewear, gain better traction.

While the company is adequately hedged against gold price volatility, jewellery-making charges are linked to the gold price. So, margins could come down if gold prices fall.