Shares of Titan were under pressure on Friday morning after Kotak Institutional Equities downgraded the stock from the stock from "add" to "reduce".

Brokerage Views: Kotak downgraded Titan to "reduce" cutting the target price to ₹3,075 from ₹3,600. The brokerage cut its FY25-27 earnings per share (EPS) estimates by 5-6% which is now 10-12% below consensus.

The research firm said Titan faces margin headwinds on three fronts. The sharp increase in gold prices will cause a similar increase in making charges which will affect EBIT margins. Increased competition caused by Kalyan and Malabar has forced Tanishq to lower the gold rate markup. Finally the direct and indirect impact of lab-grown diamonds (LGD) on studded mix and profitability.

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Gold and studded jewellery entail 8% and 25% of the EBIT margins respectively and studded mix makes up for 30% of Tanishq's sales and 55% of its EBIT margins. The brokerage firm added that in its view Tanishq's moat in gold jewelry has likely narrowed.

Titan has reported a 19% EPS compound annual growth rate (CAGR) over FY2019-24 in a relatively benign environment and the market expects a 20-21% EPS CAGR over FY24-27 notwithstanding the risks. 

Price Action: Shares of Titan fell 1.83% to ₹3,274.85 on Friday morning. 

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