Wednesday, December 30, 2015

Titan Co hits reverse gear on Rs.2-lakh PAN norm

Shares of Titan Company have come under pressure after the Centre made submission of the Permanent Account Number (PAN) mandatory for transactions above Rs.2 lakh, irrespective of the mode of payment — cash or otherwise.

The new norm will take effect from January 1, 2016.

From a high of Rs.365.95 on December 16, the stock slipped to a low of ₹343 and closed at Rs.351.30 on Tuesday.

In a disclosure to the exchanges, Titan said the Finance Ministry’s directive is likely to have an impact on the company’s cash sales going ahead. Individual products costing Rs.2-5 lakh contribute less than 10 per cent of the company’s revenue from the jewellery division, it added.

Richard Liu and Vicky Punjabi, Analysts at JM Financial, said: “We expect this move to have a temporary adverse impact on the organised jewellery trade where the size of transactions tends to be on the higher side.”

Medium-term outlook weak

Phillip Capital maintains a cautious outlook on Titan’s growth. While it will be a beneficiary of the Goods and Service Tax implementation and an uptick in discretionary consumption in the long term, the medium-term demand outlook continues to be stressed, it said. “According to our ground view study, jewellery demand in India continues to be sluggish because of weak gold prices (which remain subdued due to global macro-environment),” PhillipCapital added, which set a price target of Rs.340 on the stock.

From a long-term perspective (if the amended rules regarding PAN are implemented effectively), the new rules could reduce Titan’s competitive disadvantage versus regional and unbranded players, said Motilal Oswal, which set a price target of Rs.360 on neutral rating for the stock.

“However, we believe the change in regulation could impact near-term demand for Titan and its performance will be impacted by the trinity of weak demand, deflationary gold price and absence of operating leverage,” it added.

Even as the jewellery division saw good demand due to the festival season in October-December, Titan’s sales in the watches and eyewear category “did not see expected traction,” the company said in an exchange filing.

Slowdown in the fast-growing watches and eyewear divisions will impact growth in the medium term, PhillipCapital said.

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