Kotak Institutional Equities was bearish on Titan Company even as Tanishq’s parent firm continued to shine pushed by measures under Budget 2024.

What Happened: The brokerage had a "reduce" rating for Titan with a target price of ₹3,075. While Kotak acknowledged the Tata Group unit’s gains from the reduction of gold import duty to 6% from 15%, its cautious stance was due to external headwinds. The brokerage had downgraded the stock from “add” earlier this month.

The penetration of lab-grown diamonds (LGD) would directly or indirectly hit Tanishq's growth and profitability, the brokerage said in its note. Although India hasn't caught up to the rise in LGDs, the market change could influence consumer preferences for natural diamonds, it added. This holds especially true for Tanishq whose customer base is largely formed by the millennials and Gen X. This might lead to a slowdown in studded growth.

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As per the analysts, market competition is likely to exacerbate in the medium-to-long term. Although competitive pressure may ease in the short term, this relief may not be sustained if gold prices keep rising. The consistent rise in gold prices has benefited smaller businesses by increasing the value of their inventory, allowing them to offer more discounts. This trend is expected to continue in the medium term. 

"We expect organized players to continue to expand rapidly, independent players to defend their turf aggressively, and new entrants," Kotak Institutional Equities noted.

Short-term Gains: Titan is expected to gain in the near term as competition is expected to lessen because local jewellers and franchisees, who haven’t hedged against gold price changes, will face larger inventory losses. Overall tax incidence, including the goods and service tax (GST), has now dropped to 9.2% from 18.5%. A 9% decrease in gold prices is also likely to boost demand and reduce the attractiveness of smuggled gold.

Price Action: Shares of Titan Company were up 0.75% at ₹3,492.85 during mid-day trading on Wednesday.

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