Is Titan Industries a good contrarian bet post its Q1 nos?

Titan Industries on Thursday posted a 17 percent year-on-year jump in net profit in the first quarter at Rs 182 crore. Its net sales surged 42 percent from a year ago to Rs 3,088 crore in April-June.

The stock is gaining momentum after it posted strong numbers for this quarter. Here's why JPMorgan, Credit Suisse and Deutsche Bank are overweight on the stock, while Citi has a 'Sell' rating.

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The Bulls views

JPMorgan has maintained its overweight stance on the stock with a target price of around Rs 285 and they have increased this price from Rs 265 earlier. Additionally, there is Credit Suisse which has also maintained an outperform with a target price of Rs 305 which has been increased from Rs 278 earlier and finally it is Deutsche Bank which has upgraded the stock to a 'buy' from 'hold' and they have maintained a target price of Rs 295.

Various reasons are being cited by all these players and they believe that from the management quotes which stated that they are pretty much confident on gold supply which was being considered as an issue post various curbs, which are being put by the government, but the management is pretty confident with a sense they are the largest player in the organised segment and they think that they will be able to source it pretty well going ahead as well and it will not be much of a difficulty in case of Q2 as such going ahead.

Additionally, they are also targeting a 25 percent growth rate for the whole of FY14 and they also believe that the expansion plan which was guided by the management earlier of increasing their total holding of space by around 100,000 square feet in FY14 will be met. As of now it is believed that around 75,000 square feet can be easily done in the first half itself.

The Bears view

It is very easy to just take cues from one particular quarter which has been a good quarter for Titan, the stock price is testimony of that, but you cannot takeaway the fact that there is too much going on with the whole gold imports curb as far as Reserve Bank (RBI) is concerned.

New norms can come out anyway and that can take the stock price down southward anytime, so that unpredictability continues to remain as far as Titan is concerned. Citi has a sell rating and it is a brave call. The target price is pretty much close to where the stock is trading at right now, it is close to Rs 255 odd and they believe that even if you adjust for the inventory loss of that 9.6 percent, the margins which have come at that level, they are not really exceptional as the street is making a fairly big deal about it.

The fact that the company was making 15-16 percent margins and those have come down now to just about 9.6 percent, so that is not going down well as far as the call is concerned. They also believe that now as per the new RBI norms they have stopped selling gold coins and bars which was almost 10 percent of the company sales. Because of this, at least in the next quarter, the company could take an EPS impact hit of about 2-3 percent. So that could take overall EPS estimates of the company down.

There is of course a lot of uncertainty still as to how the company will procure that kind of gold. They have 22 tonne of gold which they have sold as of FY13. Because of the new RBI norms there is a cap there. Will they use their import license, will they have to export because of that, all that remains a little bit ambiguous at this point of time and that is why a sell rating coming in from Citi.