While reaffirming rating on Titan, Brickworks said that it draws comfort from the strong parentage and support of the Tata group and TIDCO, the strategic importance of TCL to the Tata group, established brand equity, experienced and professional management, and robust financial risk profile supported by the company's consistent performance despite the disruptions due to COVID-19.
Brickworks says, the ratings also factor in the comfortable liquidity, sound capital structure and absence of long-term debt, strong financial flexibility, and prudent financial and risk management practices. The rating strengths are partially offset by exposure to regulatory interventions and gold price volatility, which impact the demand-supply scenario in the intensely competitive retail jewellery industry and the pressure on margins in the watches segment.
Talking about Covid-19 impact on Titan, Brickworks highlighted that the company's business was impacted during H1FY21 on account of COVID-19-related disruptions. However, BWR notes the company’s ability to negotiate unprecedented challenges faced, as reflected by the sharp recovery in Q3FY21 and Q4FY21. The significant improvement in revenues was primarily on account of growth in the Jewellery division and an improvement in recovery rates in most of the others.
That said, Brickworks expects the company’s FY21 revenue to be marginally better than FY20.
On the stable outlook, Brickworks said it reflects the expectation that Titan Company Limited’s strong business risk profile will be maintained over the medium term. The outlook may be revised to Negative in the event of a deterioration in the business/financial risk profile due to the possible COVID-19-related restrictions being reimposed, regulatory changes affecting performance or other actions by the company’s management that could lead to a dilution of the risk profile.
Titan has proposed to use the available limits under Commercial Paper (CP), to manage its working capital requirements and also to benefit from interest rates arbitrage. As of date, the CP utilisation is nil.
Going forward, Brickworks stated that the company’s ability to maintain its credit profile, strengthen its business risk profile, improve and consolidate its market share in its new businesses to ensure revenue diversity and manage its working capital efficiently would be key rating sensitivities.
Brickworks also notes the impact on the business on account of COVID-19 in H1FY21. Further developments considering the recent rise in COVID-19 cases and fresh curtailment measures on a prolonged basis may have an adverse impact on the business, and the company’s ability to manage its business profile shall remain a key monitorable.
At around 10.09 am, Titan was trading at Rs1497.35 per piece up by Rs16.90 or 1.14% on Sensex.