Titan Plunges Most Since 2008 as Morgan Stanley Cuts Rating

Titan Industries Ltd., India’s largest jewelry maker by value, plunged the most in almost five years as Morgan Stanley and three brokerages cut their ratings after gold import norms were tightened.

Titan slumped 13.8 percent to 204.55 rupees in Mumbai, the sharpest fall at close since Oct. 15, 2008. The stock has fallen for nine straight days, the longest losing run since the period ended Sept. 16, 2008. Morgan Stanley cut its recommendation to underweight from equal-weight, while Religare Capital Markets Ltd. lowered it to hold from buy.

India increased the import duty on gold to 8 percent from 6 percent on June 5 and curbed purchases on a consignment basis by lenders, state trading firms and others authorized to buy directly in a bid to slow overseas purchases of the metal and narrow a record current account deficit. Jewelers will have to pay cash to import gold, according to India’s central bank.

“These regulations will affect cash margins of jewelers due to higher cost of funding as equity or unsecured domestic loans will be used to fund purchases and inventory will have to be fully paid in cash, compared with gold on lease earlier,” Goldman Sachs Group Inc. said in a report today, putting its estimates on review pending further clarity from the company.

The new rules have altered Titan’s business model, which may compel long-term investors to review their position, and may make the company less competitive versus the unorganized segment, Morgan Stanley said in a report.

Imports Fall

The import restrictions will change the financial models of jewelers in India and the cost of generating demand will go up, Bhaskar Bhat, Titan’s managing director, told reporters in Mumbai today.

“The intention of the government is that imports have to be curbed and it has begun to work,” he said. “In the last seven or eight days, imports have come down significantly.”

The Reserve Bank of India is aiming to curb the appetite for gold among the nation’s 1.2 billion population, for uses ranging from jewelry to a hedge against retail inflation. Such demand contributed to a $32.6 billion current-account gap in the last quarter of 2012, equivalent to a record 6.7 percent of gross domestic product.

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