Sales of both jewellery and watches over the last one week has returned to the levels seen for the same period before demonetisation was announced, says S Subramaniam, CFO, Titan Company.
While some impact is still seen on the trade channel or multi-brand outlets’ (MBO) sales, retail sales have returned to normalcy, he noted in an interview to CNBC-TV18.
He says the government’s clarification on gold holdings indicates they are against illegal bullion trading and not so much jewellery. As bullion is not a part of Titan’s product portfolio and since it is jewellery and not gold per se that Titan deals in, their business will not be hit in any way.
In fact, he notes this move will push people who earlier bought from the unorganised market to Titan’s Tanishq brand.
While he refrained from giving any numbers on the third quarter performance, he said the Diwali sales were good after a long time and that should help post reasonably strong numbers.
Below is the verbatim transcript of S Subramaniam’s interview to Prashant Nair & Ekta Batra on CNBC-TV18.
Prashant: Could you tell us over the last 22 odd days since the November 8th of demonetisation was announced what has been the impact on business for Titan?
A: I will talk of the jewellery business first obviously the first few days there was clearly an impact we saw much lower sales. However, the good news is over the last 10 days we are back to almost the same levels of sales that we were achieving before the demonetisation. So, we are pretty much back to in a way normalcy as far as the jewellery business is concerned.
In terms of watches again the same phenomenon we have seen in all our retail outlets which is the World of Titan and the Fastrack stores. The trade which is the multi-brand outlet (MBO) channel seems to have been impacted more, so there is a dip as far as trade channel is concerned. However, as far as retail is concerned again over the last week plus we have started seeing sales almost inline what we used to see before the demonetisation.
Ekta: Just talking about a possible change in consumer trends from a gold perspective that is possibly going to take place now because a married women can hold up to 500 grams, unmarried 250 grams and even males in the households up to 100 grams without being questioned. Legitimates sources of gold can be countless. In your sense how does that help Tanishq going forward not in FY17 but say in FY18 once things settle down?
A: What the government has come out with clarification is a very welcome move because over the last two to three weeks they have been so many rumours floating around in terms of what sort of action this industry would face has been quite unsettling and it is very welcomed that something like this has come about.
The main thing which we see here is that basically there is no ban as such on holding gold and I don’t think the government is talking about that. All they are saying is that it will be presumed to be black money if you can’t provide your sources. So, I think it is a very positive development.
We see it very much in favour of our business because as I said if we are almost back to normal in terms of normal sales it means that you have enough and more people who are going to be migrating now from possibly other jewellers on to Tanishq brand. So, we see it very positively.
Prashant: Just to go back to the first point you said retail level sales are not impacted, trade channel sales are impacted could you tell us the difference for our viewers?
A: Retail is basically our stores what we call the World of Titan and the Fastrack stores where we only sell our brands. When I talk about trade, I am talking about multi-brand outlet the smaller stores which sell other watches, all brands.
Prashant: What about jewellery?
A: Jewellery is only sold through our retail outlets.
Prashant: What you are essentially saying in October if you on the jewellery side did revenues of about Rs 100 in the month of November it will be round about Rs 100 maybe little less but not too much difference?
A: I am not comparing November I am comparing say 10 days before the demonetisation post Diwali and I am comparing that with what we have seen in the last 10 days that is what I am comparing.
Prashant: So, it is basically come back to that same level, same level of sales every day?
A: That is right.
Ekta: Just getting back to FY18 then, considering that you are expecting possible sales of Tanishq to shoot up or to get some amount of momentum your sense in terms of whether most of your investments are actually going into Tanishq going forward what would your possible sales target be if you can just outline what you might be internally working with?
A: I won’t be able to give you any guidance on growth except for the fact that we would continue to invest in our expansion of network. I don’t think we would slow that, if anything we would try and accelerate that because I think it is an great opportunity to do it and possibly a lot of the industry is going to be in pain. So, we will continue with that and not necessary only for Tanishq we would do it wherever it is required whether it is in the watch business or in the eyewear business as well.
Prashant: Just to go back to Ekta’s point earlier generally about how the government perceives gold and you and I have discussed this earlier the government doesn’t maybe in their view justly so like gold, right? I mean they want money to go into more productive assets, more financialisation etc while a lot of the speculation with the recent clarification would be put to rest there is the goods and services tax (GST) for example rates on gold etc which have to be finalised. What is your sense on that and generally gold being favoured as an investment class by people?
A: Let me first clarify, that we are in the jewellery business not in the gold business. So, that I think is a fundamental difference. We are not interested in selling bullions; we are interested in selling jewellery and customers come to us to buy jewellery. However, we understand the government is only against bullion, is against gold as an investment class rather than jewellery. I think the government for this matter definitely realises that jewellery forms a large part of our culture, heritage and our customs and the employment that it gives to the millions of people.
Prashant: What about GST, the rate?
A: GST rate I can’t speculate. We will have to wait and see but I am assuming that it should not be something which is very disruptive.
Prashant: The rate paid was what 1-1.5 percent, right, there was speculation it would go up to 2?
A: Overall we have excise duty of 1 percent and average VAT of 1 percent, so 2 percent is what we had along with the 10 percent customs duty.
Prashant: I mean the first report by the Chief Economic Advisor suggested 4 percent right?
A: 2 to 6 was the rate, it was recommended in that. I suppose with all these measures something like that happening should not really impact us so much.
Ekta: If you had to just give us some numbers, some housekeeping questions for FY17 for quarter three say quarter two your number, your total income was absolutely flat where you had your jewellery segment which was flat as well in terms of sales and watches were down 5 percent odd. Can you give us a sense in terms of what we can expect in quarter three and how much of a recovery can we expect in quarter four if you had to put it in percentage terms say sub 10 percent above 10 percent?
A: I won’t be able to give you a number but as we mentioned earlier we had a very good Diwali season. The October month which was Dussehra-Diwali was an outstanding. After very long time we had a very good Diwali, so that growth hopefully should enable us to show a reasonable growth this quarter despite the demonetisation impact and that is our hope.
Quarter four still sometime away; we are hoping that by the end of December if the liquidity situation, the cash situation comes to some near normalcy it might not actually impact quarter four much.
Ekta: Because of the kind of holdings or the demands from the government with regards to gold holdings of consumers coming about as an industry how much of say the unorganised market do you expect will get impacted and hence maybe we could see some amount of consolidation in the industry take place, your sense?
A: I can’t give numbers here, but definitely I think there is going to be an impact of this. A lot of people who have been dealing predominantly in cash are going to be impacted. So, we do expect quite a few jewellers, many of the smaller ones to shut down over the period. Now is that going to lead to consolidation terms of merger & acquisition (M&A), I am not very sure because we all have our own brands and strategies going forward. However, it clearly would make the industry far more compact possibly and more organised.