Titan shares a golden compounder? Why does Morgan Stanley think Tata Group’s stock is worth Rs. 5,182 may increase

Wall Street leader Morgan Stanley has named the nation’s largest jewelry retailer titan its new top pick, describing the stock as “the golden compounder,” while saying recent concerns over potential regulatory crackdowns have overshadowed the company’s strong operating performance.

Earlier this month, Prime Minister Narendra Modi publicly urged Indians to delay jewelery purchases for a year to help stabilize the rapidly weakening rupee. When investors thought the worst had already been priced in, the Center also hiked import duty on gold and silver to 15%, sparking fresh panic in jewelery stocks. Titan shares, as a result, are down 8% in the past 1 month.

Morgan Stanley revised its target price on the stock to Rs. 5,182 (up 27%) from Rs. was from 5,212. The brokerage said it has cut its FY27 revenue growth estimates for Tanishq, Mia and Zoya to 18% from 20% previously, keeping in mind the impact of the recently announced customs duty hike.

The brokerage said Titan is well-positioned to navigate any near-term challenges, with earnings visibility intact. According to Morgan Stanley, the current valuation offers an attractive entry opportunity for investors.

It noted that the stock is currently trading at 54 times 12-month forward price-to-earnings, compared to its five-year and three-year average multiples of 67 and 65 times, respectively. Morgan Stanley said Titan’s core business fundamentals remain strong, making it a relevant and predictable business to own over the long term.

The brokerage added that even with the associated constraints on gold supply availability, it expects the stock to fall to Rs. 3,500, indicating a downside of around 15% from current levels. However, it said this would still be above its bear-case assumptions, as such restrictions are unlikely to materially affect the company’s long-term growth trajectory.

Japanese brokerage Nomura agrees. The impact on Titan appears relatively modest across all categories, it said in a note in early May. Brokerages believe that the coins segment, which currently contributes around 10-15% of sales compared to the mid-single-digit contribution before the sharp rise in gold prices, may witness the most moderation in demand. However, as the segment operates on low single-digit margins with average jewelery making charges around 20%, a lower contribution from coins can actually support margins.

Daily-wear jewellery, which contributes around 40-50% of sales, may see some pressure due to higher price sensitivity and discretionary nature of purchases. However, Titan’s increased focus on lightweight jewelery and lower ticket-size products could dampen the impact.

Wedding jewellery, which contributes around 15-20% of sales, is expected to see minimal impact due to its essential and culturally non-discretionary nature. Nomura believes that adopting the old gold exchange scheme could further support affordability despite high ticket sizes.

The brokerage is expected to have almost no impact on diamond jewellery, which contributes around 25-30% of sales, due to lower direct dependence on gold prices and Titan’s relatively rich customer base.

Nomura also believes that Titan can strategically use part of the one-time inventory gains arising from higher duties to expand market share through customer acquisition, demand support and promotional activity.

Buying Indian gold, especially during weddings and festivals, has historically been deeply emotional and culturally connected. Ponmudi added that organized jewelery players may continue to gain market share as consumers increasingly gravitate towards reliable and transparent brands during the uncertain period.

(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)