Titan-Damas Deal: Why Brokerages Are Cheering UAE Firm Acquisition in Indian Stock Market
India’s largest jewellery maker, Titan Company Ltd., has announced the acquisition of a majority 67% stake in UAE-based Damas Jewellery, a move that is expected to strengthen its presence in the Gulf Cooperation Council (GCC) region.
The acquisition is seen as a strategic move by Titan to expand its business in the GCC region, which is home to many Indian expatriates. The deal is expected to boost Titan’s revenue and profitability, making it an attractive investment opportunity for brokerages.
Why Brokerages Are Bullish on Titan
Brokerages such as Macquarie, Morgan Stanley, and Citi have maintained a bullish outlook on Titan Company Ltd. after the acquisition announcement. Macquarie has maintained its ‘outperform’ rating with a target price of Rs 4,150, while Morgan Stanley has retained its ‘overweight’ rating with a target price of Rs 3,876. Citi has maintained a ‘neutral’ stance with a target price of Rs 3,800.
Macquarie highlighted that the acquisition of Damas Jewellery would bolster Titan’s presence in the Middle East. ‘The move paves the way for Titan’s expansion across the Gulf countries and the broadening of the addressable market,’ it added.
Morgan Stanley noted that the acquisition of Damas International is at a reasonable valuation. ‘The acquisition of Damas is to be funded by a combination of debt, cash balances, and internal accruals,’ it noted.
Citi noted that given Titan’s previous success in acquiring and scaling CaratLane, along with improvements in profitability, bodes well for the Damas acquisition. ‘We expect investors to see this investment as marginally positive,’ it added.
What Does the Acquisition Mean for Titan’s Earnings?
The acquisition is expected to have a minor impact on Titan’s earnings per share, according to Macquarie. Assuming a 4% funding cost for the acquisition at an enterprise value of AED 1 billion and Damas’ profit before tax (PBT) remaining at CY24 levels, the brokerage estimates a 1% impact on Titan’s earnings per share.
However, brokerages are seeking clarity on the likely synergies that could offset this and impact EPS accretion. ‘We seeks clarity on the likely synergies that could offset this and impact EPS accretion,’ Macquarie added.
What’s Next for Titan and Damas Jewellery?
The acquisition is expected to help Titan expand its business in the GCC region, targeting nationalities and ethnicities other than Indian diaspora. ‘As per management, the acquisition brings multiple synergies in retail network, talent, and the supply chain,’ Morgan Stanley noted.
The deal is expected to be funded by a combination of debt, cash balances, and internal accruals. Titan’s management has stated that the acquisition will help the company expand its retail network, talent pool, and supply chain, leading to increased profitability and revenue.
Conclusion
The acquisition of Damas Jewellery by Titan Company Ltd. is a significant move that is expected to strengthen Titan’s presence in the Gulf Cooperation Council (GCC) region. Brokerages are bullish on the deal, citing its strategic importance and potential for long-term growth. As the deal is expected to have a minor impact on Titan’s earnings per share, investors are likely to see this investment as marginally positive.
