Tanishq sees slower sales growth amid high gold prices

Nachiket Kelkar
Moneycontrol.com

Jewellery retailer Tanishq, part of Titan Industries, expects its sales to grow at a slower 30% this year, compared with around 40% growth it saw in FY12 as high gold prices have led to lower purchases.

"Rate of growth has clearly come down in the last 6-8 months. There has been a decline in the rate of growth for us. Good part is we are still in the positive side, double digit growth, but not the levels that we had in the past," Sandeep Kulhalli, VP - Retail & Marketing told moneycontrol.com.

According to data released by World Gold Council, demand for the yellow metal in India fell 19% in Jan-March quarter, which also witnessed a three-week strike by jewellers.

"Demand in both the jewellery and investment sectors was affected as consumers and the trade sought to digest the implications of a change to the tax treatment of gold. Weakness and volatility in the rupee gold price added to the consumers' reluctance to increase their volume purchases of gold," WGC said in its report.

It expects jewellery demand in India in the second quarter will also be slow due to high local prices and fewer auspicious days in the Hindu calender.

LARGE STORES

Tanishq is India's largest jewellery retailer and currently operates 137 stores in 80 cities. It has a plan to open 45 stores this year, Kulhalli said on the sidelines of re-launching the Tanishq store in Mumbai's suburb of Bandra. The store is spread over two-stories and 6,000 square feet. The plan is to open more large format stores as it gives them more exposure and in turn more sales, he said.

"Directionally we want to move into larger stores. This is about giving much better comfort and display of jewellery. And clearly we have seen (financial) performance of our large format stores is superior to the smaller neighbourhood stores that we had earlier," he said.

Customers find a much better inventory when they come to a large store and so the perception changes too, Kulhalli said. Diamond sales have also been better in large format stores, he added.

Half of the 45 new stores planned this year will be in the smaller (B and C category) towns, where the size of the store will be around 2,000-3,000 square feet. The remaining stores will be in the 5,000-6,000 square feet category.

The company also has a GoldPlus jewellery retail chain targetted at smaller towns. Kulhalli says GoldPlus will be more or less restricted to southern states.

Apart from gold, diamond prices too have increased over the last one year due to a demand supply gap in the global market.  The recent sharp depreciation in the rupee has also made polished diamonds more expensive. Tanishq launched a affordable diamonds campaign to lure more customers to buy diamonds, with products priced in the Rs 10,000-25,000 range and Kulhalli says response has been good.

PLATINUM SALES RISING

Diamonds currently account for 30% of Tanishq's overall sales, most of the rest accounting for gold. But as gold has become expensive, the mix is changing, with more people opting for platinum jewellery.

Purchases of platinum by the jewellery sector in India grew by a third to 2.5 tonnes in 2011, according to a report by precious metals refiner Johnson Matthey.

"Although India remains overwhelmingly a gold market, from a low base platinum is becoming more popular with the rapidly growing middle class and several retailers are opening new stores in key Indian cities and are actively promoting platinum jewellery collections," the report said.

Tanishq, for instance, which was selling platinum in 30 stores now plans to expand sales to 100 stores this year.

"Platinum is growing at a rapid rate although its still a small part of our business.  We are expanding it from a merchandise point of view, we are expanding our network...Right now all stores don't carry platinum, only the large stores. This year we plan to expand into 70-80 stores, we are currently at 30 stores," Kulhalli said.

Titan Industries shares were up 1% at Rs 226 on NSE in afternoon trade on Thursday. The stock is up 31% since Dec-end.

Citigroup advises investors "sell" Titan shares as rich valuations and elevated margin expansion / profit growth expectations will likely weigh on the stock.

Emkay Global, on the other hand, advises investors "buy" Titan. It says aggressive store expansion, multi-point activation of jewellery business and emergence of Fast Track brand, will drive growth.

nachiket.kelkar@moneycontrol.com