Spike in gold prices weighs on 50% of Jhunjhunwala portfolio

NEW DELHI: A sudden rise in gold prices may hit over 50 per cent of equity portfolio of ace investor Rakesh Jhunjhunwala.

His single-largest investment Titan Company reported a 2 per cent drop in revenue in its jewellery segment for September quarter, hurting the stock’s prospects and, thereby, over 50 per cent of the Big Bull’s known stock portfolio of Rs 13,000 crore.

Jhunjhunwala and his better half Rekha owned 7.05 per cent stake in Titan as of June end, which was worth Rs 7,500 crore at Wednesday’s price. The scrip tanked 4.73 per cent to hit a low of Rs 1,199.

Goldman Sachs, which has a neutral rating, has a price target of Rs 1,108 for the stock.

At 48 times FY21 EPS, the scrip is pricing in a recovery in jewellery sales, it said, while lowering its FY20-22 estimates by roughly 1 per cent to reflect lower sales.

Another foreign brokerage Macquarie has a price target of Rs 1,078. It noted that September is generally a moderate quarter for the jewellery business. The targets by the two foreign brokerages suggest up to 10 per cent downside potential.

The scrip delivered a whopping 103.86 per cent return in last two years, which was 5 times Sensex’s 17 per cent return.


“We expect Titan to report flattish revenue growth for September quarter. Nevertheless, we continue to believe its long-term fundamentals remain intact. In the absence of higher investment opportunities in the sector, Titan would continue to command high valuations,” Dolat Capital said in a note.

This brokerage has an 'accumulate' rating on the stock, as it believes the company may manage to meet its 20 per cent jewellery segment revenue guidance for FY20.

“We estimated 14 per cent jewellery revenue growth for June quarter, but the actual growth was below our expectation. We attribute this to the gold price increase in mid-June and July (up 23 per cent YoY in Q2), which resulted in volume slowdown. Nevertheless, gradual improvement in sales (July to September) hints that the company would be able to meet its target of 20 per cent sales growth in H2FY20E,” it said.

While retail sales declined in July, retail growth was 15 per cent YoY between August and September, possibly due to higher promotions and schemes, the Tata group company told BSE.

Retail sales or secondary sales rose 7 per cent in Q2 but revenues as per the financials declined 2 per cent YoY due to the adverse impact of the hedges that matured during the quarter, the company said.

“Titan has made disclosures time and again. They have been very transparent. The market actually understands that these are things, which are probably seasonal. It will going to be tided over. What one values is the franchise and sustainable ROEs that it can report, which I think is pretty good,” said Sameer Narayan, market expert.

During the quarter, the company’s Tanishq division added a net of 21 stores in Q2, and 33 in total for the first six months of the ongoing financial year.

Motilal Oswal Securities said Titan is a business that has best top-line growth visibility in the largecap retail space, prospects of a continued Ebitda margin improvement because of high same-store sale growth contribution and the likelihood of delivering a sustained RoCE improvement from 26 per cent in FY19 to 35 per cent.