NEW DELHI: What made ace investor Rakesh Jhunjhunwala cut his stake in Titan Company, the biggest holding in his portfolio? A regulatory filing on Thursday showed the ace investor sold 1.25 crore shares, or 1.4 per cent stake, in the jeweller during May and June.The ace investor saw his holding in Titan drop to 6.54 crore shares, or 7.37 per cent stake, from 7.79 crore shares, or 8.78 per cent stake, as of May 21, 2018. High valuations, profit booking? Ever since the Jhunjhunwalas first invested in the stock (based on last data available with stock exchanges i.e. March 2005), the company’s market value has swelled nearly 85 times. The combined holdings of the ace investor and his wife, Rekha Jhunjhunwala, in the company remained in the 8-10 per cent range all through these years. This time it has slipped below 8 per cent. Titan is a growth stock and has historically enjoyed high PE multiples. The scrip has risen 65 per cent in last one year but its recent performance has been anything but spectacular.Data showed PE multiple expansion contributed nearly 63 per cent of return that the stock generated all this while; the contribution of earnings was merely 37 per cent.

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But given the strong earnings expansion the company is projected to report over the coming years, analysts are not too much worried above valuation.Out of 31 analysts tracking the stock, 14 have ‘outperform’ and eight others have ‘buy’ ratings, Reuters data suggests. Titan will continue to command punchy valuations and, hence, current PE of 44 times FY20E EPS is inexpensive, Ambit Capital said in a note.In the fourth quarter, the company’s jewellery segment growth was healthy even on top of last year’s high base. The management has guided for 25 per cent growth in FY19 despite a strong base of 25 per cent growth in the jewellery segment in FY18. The company also offers eyewear and watches.What stood out about the results was outperformance on margins, the guidance and the jewellery segment growth projection for FY19, Motilal Oswal Securities said.”The management’s confidence on margin has increased remarkably over the past one year, moving from talk about sacrificing margins for high growth last year to talking about sacrificing margin growth in quest for growth toward the middle of FY18 and finally stating that if high growth sustains, margins will improve,” the brokerage said in a recent note.
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In late February this year, Jhunjhunwala for the first time sounded a little iffy about the stock.In an interview with ETNOW, he said he does not have any advice to anybody on Titan. Asked whether Titan was benefitting from the formalisation of the economy, he said: “Time will tell. It is very difficult to predict.”Jhunjhunwala & Titan managementDuring the March quarter investor meet, Jhunjhunwala grilled the Titan management, arguing that margins were going up because Titan does not report the amount of jewellery it purchases from or exchanges with customers.“So you get margin and believe in what you buy also takes up your overall margin. Am I right? Suppose I come to exchange jewellery, I give you gold ornaments and buy jewellery. The company gets two margins. One is, of course, in the sale, and the other on what you purchase,” he said.CK Venkataraman, CEO of Titan’s jewellery division, said the company had changed its policy to make exchange more attractive and it does not make any profit on these transactions. “We make a loss,” he said.During the quarter, the company made impairment provisions for a Rs 75 crore investment it had made in Favre Leuba due to slower-than-expected takeoff. Jhunjhunwala was concerned.“Your belief is, it will make money?” he asked at the investor meet. Managing Director Bhaskar Bhat answered in affirmative, but said the investment will take at least five years before it starts making money.”You can keep on investing and writing off. But we have some right to ask you, because you have written off Rs 75 crore. How much do you intend to invest and what business plan do you have?,” Jhunjhunwala asked.The Big Bull later said the impairment was absolutely right, but as an investor he wanted to know how much more investments will be made going ahead and how much writeoffs it proposes in the coming quarters. “We do not expect to write off any further, but we have just been conservative in our accounting,” Bhat said. He said the company would continue to invest for next five years.
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Charity?In 2016, the Big Bull announced plans to donate Rs 5,000 crore, or 25 per cent of his total wealth – whichever is lower – to philanthropy when he turns 60 on July 5, 2020. While only Jhunjhunwala knows the exact reason for this trimming of holding in Titan, analysts say one must do own research before taking any decision on whether to enter or exit the stock. Mimicking investment strategies of big investors do not always work, they said.

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