The fall of Titan Industries

Titan Industries was one of the main stocks that fell on Wednesday. It dropped 6.23% to close the day at Rs4,288. The reason for this fall was a downgrade by CLSA to ‘Sell’ with a price target of Rs3,670.

This is not the first time a broking firm has downgraded the stock. Kotak Securities, in its report on the company on June 14, 2011, downgraded it to ‘Neutral’ with a price target of Rs4,800.

JP Morgan, after meeting the management, gave a ‘Neutral’ rating on the same date with a price target of Rs4,250. On the other hand, UBS maintained its ‘Buy’ rating in its report dated June 16, 2011 with a price target of Rs5,000. It was only after a CLSA rating that the stock crashed.

Three reasons can be cited for the fall. One, the popularity and market share of CLSA among the investing community.

Second, the target price given by CLSA is the lowest, a price which is almost 20% away from the current level. Third, is the current jittery state of the market, which seems to get spooked by every bit of negative news.

The reason for re-rating by the three brokers, who have downgraded the company, has been the same. Very high valuations, given the sharp move in the share price, which has risen over 200% in the last 18 months, lives little upside in the stock. Even UBS has given a target which was Rs5,000, which was barely 5% away from the target price.

Rise in diamond prices was the other reason that the broking firms said is likely to affect the company’s performance. Studded jewellery was the reason for margin expansion in FY11.

Despite the downgrades, all reports have praised the company’s business and growth model. Titan can be among the first stocks to move as markets improve.