Jewellery biz unaffected by high gold price, says Titan MD

Price of gold in India has touched new highs of late and this has led to a talk of demand slowdown for the golden metal. Bhaskar Bhat, MD of Titan acknowledged the slowdown and said that jewelers across the country has witnessed sharp decline in volumes. However, Titan's jewellery arm, Tanishq remains less affected, informed Bhat. He also expects demand for gold to pick up during the festive season.

Besides, Bhat is in favour of encouraging gold recycling. In an interview on CNBC-TV18, he stressed on the fact that a lot of gold lies in lockers and customers need to put it to use and help in adding value. This would help the industry to a large extent, believes Bhat.
The weak rupee has also caused some cost pressures in Titan's eye-wear and watch business as they depend on imports to a certain extent, Bhat said. The company is also looking to increase its proportion of diamond jewellery in its total sales.
Titan is currently aiming at an additional 200,000 sq ft of expansion to reach out to more customers and increase its market share further. The MD is also hopeful of protecting margins and feels that there will be no margin dilution.   Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying videos. Q: There has been this broad talk of demand slowdown for gold. As a country itself, we had a lot of projections in the gold council which indicated that imports had slowed down. Is that being reflected in jewellery volumes at the moment?
A: I think it's been across the board. Yes it has been there for a while now. Since November, imports have come down quite substantially and even other jewellers have witnessed sharp decline in volumes. Tanishq is less affected, the Titan jewellery business is less affected.
But, what matters for us is customer growth. That is what we are pursuing because volume decline with the price being higher gives us the turnover growth. Therefore, revenues and profits are in a way protected. So customer growth is what matters because at this high price, there is a reluctance for customers to buy new gold and recycling is something which needs to be encouraged now. Q: Is there any impact at all of the rupee depreciation on your business?
A: Certainly yes. I mean there have been cost pressures because the watch and the eye-wear divisions, both have to import. While we have covered ourselves by hedging and so on but, there is an impact to some extent. Therefore, price increases are round the corner in watches and we do believe we have that pricing power. So that is the effect of the rupee weakening and it has been quite substantial.
On the gold price front, the price of gold has gone up quite considerably because of the rupee weakening. Although, the global prices have not increased to that extent, the India impact is affected by the weakening rupee. Q: I thought the impact of rupee was blunted by the fact that gold also fell, so you are landed price of gold has not materially changed?
A: Proportionately no. Year on year if you see, it's a 30% increase in the price of gold, if you take the Indian price. There is one more impact; the import duty has gone up from 1-2% to 4%.
So market price has been affected by all that, not just the international dollar price. There is import duty and the rupee effect. So the rupee price of gold is higher, growth in price is higher than the international price.
Q4: You said something about recycling needs to be encouraged. Are you going up that path?
A: It has been there, we have been doing it and I think the industry has been doing that. It's to the extent of 15-20% and there is a lot of gold lying in stock with customers. Putting it to use would be in the interest of the customers as well as the industry and perhaps, even the government. So circulating that gold and adding value to that gold is better than keeping it lying in lockers. It's just a point of view. Q: At a time of slowdown like this, Titan is undergoing store expansion plan and it's pretty aggressive. Do you think you will be able to gain market share from the unbranded players and what gives you the confidence of being able to do so? Will you be able to offer competitive pricing?
A: Store expansion in a way its quite independent of the current situation in the market play because store expansion is really a long term play. Simply put, the awareness of our brands Tanishq and Gold Plus, to some extent exceeds the reach of those brands. So it would be appropriate for us to be in those places where it may make sense, where awareness is still high for the brand, but you haven't been able to reach the customer.
Store expansion will go on because it's a long term investment. This year we are continuing to be aggressive about that. Not to the same extent perhaps, in the watch division but to some extent with our youth brand Fastrack. But, they are much smaller stores, so that is the view we have taken.
We have always increased market share irrespective of which town we are in because the migration from the smaller unorganized player to a brand from Tata has been going on for several years. That is how our market share has gone up constantly. That will happen as we open new stores, in new towns and in existing towns. So market share increase will continue.
I think, as far as price competitiveness is concerned, the total package that we offer which is purity, quality of design, finish, the experience in the store and overall brand image of Tanishq, Gold Plus and Zoya is what counts to the Titan jewellery customer. We will continue to follow that strategy. Q: Gold international prices have sort of stabilised around USD 1550 to 1650 per ounce range and many believe the downside to the rupee seems to be limited from here. So at current domestic prices of gold, do you think if there were to be stability, buyers could come in? At what price of gold do you think you could see buying emerge again?
A: Our belief is that demand will come back because the intrinsic desire for gold amongst Indians is still very-very high and with price stabilising, I believe gold volumes will go up. But at what price and what volume, it is not possible to answer.
The volume growth in jewellery store could be high because the sentiment will change, because there is sentiment attached to bringing back old gold. I do believe that the festive season will show us the way and as of now we do believe we have a good 3-4 months as we go forward. Q: For the year as a whole, should we work with a 30% rise in topline and bottomline?
A: That is what we had targeted and it’s too early to change anything. We are pretty confident of being able to achieve our targets. We have had a difficult first quarter because of all round sluggishness in retail. May was not good. April was good. June is comme ci comme ca and we do hope – we are not changing anything but its going to be a tough year. Q: Just one more number from you, the last breakup we have is in terms of revenues. Watches 15%, jewelry 80% and the others 5%, does this share change in FY13 or in FY14?
A: No, not much. It will be pretty much the same.