Rakesh Jhunjhunwala, the Badshah of Dalal Street, knows better than anyone else the joys and the perils of a concentrated portfolio. A few days ago when CRISIL surged 20% over news that McGraw Hill was making an open offer for its shares, the DNA gleefully reported that Rakesh Jhunjhunwala had made Rs. 100 crore without any effort.
Today, when Titan Industries plunged 10.39%, Rakesh Jhunjhunwala lost Rs. 224 crore. Titan Industries opened at Rs. 262 and in a bout of unabated selling, lost 10.39% to close the day at Rs. 237. Titan Industries has been facing a lot of weakness after the RBI, with a move to curb rising gold imports, banned the import of gold with bank credit and made overseas purchase a cash & carry business. About a fortnight ago, the RBI had also banned consignment based import of gold (unless it is being used for re-export). It required jewellers to place orders with banks by paying the margin money and banks would import only after this is done. Now, this move is likely to lead to higher lease rates and/or increased working capital cycles and impact profitabilty.
ICICI Direct issued a research note stating that increase in costs would be passed on to consumers in the form of higher making charges etc and that there would not be a significant impact on domestic jewelers like Titan Industries. ICICI did caution that Titan would face near term headwinds owing to regulatory issues. It advised investors that as the long term story and fundamentals of Titan remained intact, they should be “cautiously positive” and hold Titan with a target price of Rs. 299 (24.0x FY15E EPS of Rs. 12.5).
Now, coming back to Rakesh Jhunjhunwala, he holds 60,125,645 shares of Titan (6.77%) while his wife Rekha Jhunjhunwala holds 21,641,575 (2.44%) aggregating 81,767,220 shares. As the shares fell by Rs. 27.50, Rakesh Jhunjhunwala’s loss for the day from Titan Industries was Rs. 224.85 crores.
I took advantage of the plunge to tank up on Titan. In the limited time that I have been tracking it, Titan Industries has seen a lot of ups and downs. However, it has such a great brand name and marketing muscle that it is always able to lift itself up and surge to new heights. Will it be able to do so now is the answer to the million dollar question everybody wants to know.
The latest regulatory measures to curb gold imports will hurt margins and cash flow at Titan Industries Ltd, which gets nearly 80% of its sales from jewellery.
On 4 June the Reserve Bank of India (RBI) changed some rules regarding gold imports. Titan said on Tuesday that it had held discussions with the RBI officials to get more clarity on the rules.