We cut FY16F/FY17F/FY18F earnings by 13.4%/10.2%/2.9%, respectively on the back of a 9-11% cut in our revenue estimates, mainly owing to the continued slowdown in demand and rising competition among both organised and unorganised companies. The regulatory overhang remains and may affect earnings negatively in the near and medium term; hence, we forecast flat earnings growth for FY16F and ~20% growth in FY17F and FY18F.
Consumer sentiment has been weak over the past two quarters, and we do not expect a significant pick-up anytime soon. The Golden Harvest Scheme (GHS) will only start contributing to revenue in Q4FY16. Apart from weak demand, competition in the jewellery and watches segment is intensifying, and Titan appears to be losing market share. The company’s long-term strategy continues to be under pressure from regulatory risks such as, high customs duties on gold imports, mandatory requirement to furnish income tax details for big purchases and, more recently, the proposed recommendations to the GST for precious metals.
The stock currently trades at 32.5x FY17F EPS of Rs 11.2 and 30x 1-year forward EPS. We estimate the fair value trading range for the stock is 25-30x, and it is already trading at the higher end of the band at ~+1Sd above its long-term average. We assign a target multiple of 27x (given the volatility in earnings and regulatory overhang) based on one-year forward EPS of Rs 12.2 to arrive at our TP of Rs 330.
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