Don't see fall in gold jewellery demand: Titan

Gold fell to its lowest level in 21 months on Monday and analysts expect the prices of the yellow metal to remain bearish over the next few months.

Bhaskar Bhat, MD of watches to jewellery retailer Titan Industries told CNBC-TV18 that the second round of fall in gold prices has not hurt sales. Gold jewellery sales have been strong, especially, given the ongoing wedding season. 

Going ahead there is unlikely to be a decline in demand as "friendlier" gold prices are inducing jewellery sales.

While the wedding season has given gold jewellery season a boost, diamond jewellery sales are growing at a slower pace, Bhat said.

Studded jewellery attracts higher margins, so a slower growth there will pressure margins.

Also read: Titan tones down expansion, trims costs to boost demand

Below is the verbatim transcript of his interview to CNBC-TV18

Q: The first time gold fell there was a rush to buy it perhaps also coinciding with the marriage season, but in the latest bout of a sell off what kind of feedback are you getting from the Tanishq stores?

A: The season has been good because of the wedding season. In May we had Akshaya Tritiya, which is a big buying day. Surprisingly, this year not just Akshaya Tritiya, but a couple of days before that also sale was very good.

Growth is healthy, although the prices are lower compared to last year. It is between 6 and 10 percent lower. Now with the second round of drop sales have not dampened because we are in the middle of the wedding season.

So, it is good news for customers, although government maybe a little worried about the import. However, consumer is responding to this drop in the price of gold. The only other thing is the proportion of diamonds therefore falls. Diamond jewelry is growing at a slower pace than gold jewelry.

Q: Any anecdotal data on how much retail consumption has jumped by because of this fall in gold prices? What kind of increase in sales have you guys registered even roughly across your stores?

A: Last year we were struggling for volume growth. Grammage growth was a big struggle. We are back into grammage growth and prices are lower. So, value growth in excess of 25 percent is something which all jewelers are witnessing and so are we. Thus, volume growth is making up for the price drop.

Q: How will it affect your margin performance? This quarter around you did okay on the margin front, but on the point you were making about diamond sales would you expect volumes to be strong, but margins to be damp or will this kind of volume growth basically cover for all sales?

A: Volume growth in plain gold jewelry will never make up for the blended percentage margin. The plain gold jewelry is lower in terms of margin. The percentage really should not count when you are on a healthy growth trajectory. Therefore, the quantum of profit is what matters as long as your ROC is good.

Our entire business model is on quantum growth in profit without additional increase in working capital to ensure quick turn of working capital. Having said that because of the lower growth in diamond jewelry sale the margin percentage will drop.

For the company however the margin percentage will get balanced by the growth in the other two high-margin businesses which is watches and eyewear. It is good times. This first quarter things at the consumer end at least for the lifestyle businesses are looking quite okay.

Q: If the price of gold continues to drift lower do you see this kind of volume buoyancy continuing or do you think the confidence in the asset class might get shaken over a period of time. That may eventually lead to some kind of tapering down of sales, opposite of what you are witnessing right now?

A: This hypothesis has been promulgated for several years now. I was one of the believers in the fact that Indians want gold jewelry irrespective of the price. The investment sentiment is amongst investors, but the jewelry which is a combination of hedging against inflation etc. which is an age old tradition in the Indian families continues.

Therefore when there is an opportunity people buy gold. Last year inflation was high and people were not having enough savings and the volume growth was lower. I do expect that friendlier gold prices will be helpful in increasing volumes sales and consumers will make up in a way for the last 18 months of negative volume growth. I do not expect a decline.

Q: What are you seeing in the watches segment? That has been quite sluggish of late. You faced some inventory issues in the previous quarter as well. Have things stabilized or is it stabilizing at a lower growth platform?

A: Last year was low. We grew 10 percent, but that was a combination of many things, one of them being the poor wedding season etc. We have been undertaking a lot of corrections in the watch division, including engagement with Goldratt and Theory Of Constraints (TOC) correcting our inventories.

So, there are several initiatives in place both for triggering top-line growth as well as margins. We should see a significant change in watches in terms of growth rates as well as margins in the current year. We will continue to invest in network expansion specially Helios and Fastrack channels.

Q: Have you witnessed any change in terms of people’s consumption towards the organized versus the unorganized?

A: This shift to the organized sector is gradual, but definite. It is triggered by those who really do not have time - for the mobile Indian in a way who does not have this connect with the family jeweler.

The second who does not have time as in to travel from shop to shop to see where you get the lowest making charge or the lowest price etc. That is where organized sector such as Tanishq plays a very important role. You have the confidence both in the quality and the genuinity of the price. So, you are willing to pay a little bit extra for those two, because you save a lot of hassle.

Another part of gold business is a lot of cash transaction. Government has done right by bringing in these stipulations, because gold jewelry business is rife with black money. To curb it there is a need to bring in these things. It does affect organized sector players, but then the strength of our brand overcomes the customer profile.

So, the short answer is there is an increasing awareness about all these things in India especially amongst the young, the housewives, businessmen and professionals who want to shop in the organized sector. The difference is not that much, but when you do not have white money then there is a problem.