Why Rakesh Jhunjhunwala’s favorite stock Titan is the new best bet for investors - Expert analysis

The Warren Buffett in India aka Rakesh Jhunjhunwala needs only one stock to make money, even if markets are crumbling down. This stock is none other than Titan Company which is the most favorite pick of Jhunjhunwala. Guess what! Titan has not failed to reap fruits for the ace investor, as he continues to make money with the ongoing rally in this jewelry stock. However, on Wednesday, the share price of Titan plunged by over 2%, before ending at Rs 1017.65 per piece down by Rs 20.05 or 1.93% on Sensex. With this tumble, one can take Titan as well placed for buying, because rating agency ICRA has just given further positive outlook on this company. 

ICRA believes that Titan’s revenues will continue to witness margin expansion and steady growth, supported by strong brand presence and steady demand.

Here are four reason given by ICRA, which reveals why Titan is a stock to buy.

Leadership position in organised watches and branded jewellery segment!

Titan is the world’s fifth largest watch manufacturer and India’s dominant watch manufacturer, with over 60% market share in the organised segment. 

Wide distribution and service networks, diversified product coverage in terms of price points and styles, and consistency in launch of new designs are expected to continue to support Titan’s market leadership in the watches and jewellery segments. Titan also has leadership position in the eyewear business.

Favourable medium-term outlook for gold jewellery industry; organised retailers at advantage! 

Over the medium to long term, the demand will be supported by the cultural underpinnings, evolving lifestyle, growing disposable income, favourable demographic dividend and increasing penetration of the organised sector. 

Increasing regulatory restrictions aimed towards greater transparency and higher compliance costs have been resulting in a sizeable churn in the unorganised segment, thus benefiting the organised players like Titan.

Titan’s Jewellery business has been consistently gaining market share on the back of well-laid out strategies of increasing its revenue share from wedding and high-value studded segments. 

Strong financial profile!

Titan has a strong liquidity profile with substantial liquid investments and cash reserves amounting to Rs 850 crore and low working capital utilisation of Rs ~1,600 crore (largely non-fund based on the available credit lines of Rs 4,550 crore as on December 31, 2018).

High sale per square feet, strong same-store growth and healthy inventory turnover ensure strong store-level profitability. These coupled with economies of scale and franchisee operations help generate adequate EBIT margins and high return on capital employed for Titan.

Strong parentage!

Titan is a part of the TATA Group of Companies, which is India’s largest business conglomerate. Tata Group holds 25.04% equity stake in Titan with Tata Sons Private Limited having 20.84% stake.

Take note, so far in 2019, Titan has risen by over 16%, adding many crores for Jhunjhunwala. 

Coming back to Jhunjhunwala, he earned massive from Titan alone since last year. His wealth in Titan which stood below Rs 5,900 crore by end of December 2018, has now surged to over Rs 6,500 crore till date in 2019. Interestingly, the big bull in Q3FY19, chalk down his holding in the company by a fraction of 0.04%. He now holds about 7.08% stake in Titan with 62,901,220 equity shares. 

Where is Titan shares headed?

Analysts at Standard Chartered believe, the stock has given a breakout from head and shoulder pattern with neckline at Rs 1,000. So long as stock trades above this level, it could rally to Rs 1,250 and Rs 1,400 in the medium term. Supports are at Rs 1,000 and Rs 940. Resistances are at Rs 1,100 and Rs 1,200. The RSI is above 60 and is in bullish mode.

While analysts at Stewart Mackertich adds, “We expect the company to achieve 22% CAGR in jewellery business over the next three years led by gold exchange, increasing contribution from wedding collection and the margin support through operating leverage. Their eyewear, fragrance, & saree business also looks promising in near term. Factoring the above rationale we are assigning a P/E of 49x on the FY21 revised EPS to upgrade our price target from Rs 1065 to Rs 1140.”

The highest potential level for Titan is Rs 1,400, and if compare it current market price, then the company is set to rise by nearly 38% in near term.