Pranab Mukherjee changes the game for Titan

The Union Budget may alter the growth trajectory for Titan Industries Ltd, a Tata group company which runs Tanishq and Gold Plus gold jewellery stores in the country.

On Wednesday, Morgan Stanley Research downgraded Titan Industries’ stock from overweight to underweight and cut the price target to Rs198 from Rs231.15 while also forecasting a double-digit decline in same-store sales growth for the ongoing fourth quarter.

Nillai Shah, Girish Achhipalia and Sanath Sudarshan, Morgan Stanley Research analysts, said policy changes in the recent Union Budget may have a structural negative impact on the organised jewellery industry in India, where Titan is a dominant player.

“Our long-held positive view on Titan was based on the company’s ability to deliver strong volume growth and mix-driven margin expansion ahead of market estimates. However, after the Budget, we have a lower conviction on this occurring,” they said.

In the Budget, customs duty on gold bars, gold coins and platinum was doubled to 4% and for non-standard gold to 10%. In the last one year alone, gold prices for consumers have increased by 35%.

Alongside, from July 1, 2011, the government has mandated that consumers furnish their PAN cards details for all purchases over Rs5 lakh. The Budget also said that merchants could collect 1% of the sales price as tax collected at source (TCS) for cash purchases above Rs2 lakh. This could have an adverse impact on volumes, Shah, Achhipalia and Sudarshan said.

Some consumers may even shift to the unorganised segment or the local jewellery shops to avoid furnishing their PAN details, they said.

Overall, volume growth continues to decline in Titan’s jewellery business and analysts have a lower conviction on the company’s ability to deliver strong volume growth.  

The stock has performed strongly since 2009, increasing four times and outperforming the barometer Sensex by over 300% led by strong volume and margin expansion. However, after the Budget there are concerns over company’s ability to mirror its historical growth trajectory.