Moneycontrol
Last Updated : Jun 03, 2016 01:37 PM IST | Source: CNBC-TV18

Gold's investment appeal is over but Titan is not worried

After the company posted its fourth quarter earnings, Titan said it is targeting 15 percent plus growth in fiscal year 2017.


Gold prices have been remained sober for the past many years, since peaking out in 2011 but S Subramaniam, CFO of Titan Company, whose Tanishq jewellery business contributes a major chunk of revenues is not worried.

After the company posted its fourth quarter earnings, Titan said it is targeting 15 percent plus growth in fiscal year 2017.

In an interview with CNBC-TV18, Subramanian said he expects the jewellery business -- watches and, to a small extent, eyewear, make up for the rest -- to drive growth.

"Gold is not an important destination these days. The government's action against black money -- it has not impacted Titan directly -- has also taken a toll," he said.

But demand for jewellery is holding up.

"We were out of stock for a lot of collections we launched last year. We are focusing on launching jewellery that people want," he said.

"The price point (selling price) for jewellery is also coming down as younger women would want to buy them as accessories at a lower price and more frequently," he added.

Below is the verbatim transcript of S Subramaniam's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
 
Latha: From your investor conference the key takeaway was that you are maintaining your 15 percent revenue growth guidance. Can you split this up into what will be the watches segment, what will be the jewellery segment and Fastrack segment?


A: We are expecting more than 15 percent as far as jewellery business is concerned. Watches will be muted; it will be around 6-7 percent. We are doing a lot of correction to our portfolio so that might affect some growth and generally growth in the watch segment has been under pressure over the last couple of years, so 6-7 percent is what we are looking at achieving there. Fastrack is part of watches, so it would be consumed in that.       


As far as eyewear is concerned, we should do more mid level teen growth, 15 percent plus is something which we should comfortably do. Overall for the company we are looking at 15 percent plus. As of now we believe that should be possible.

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On a quarter-on-quarter basis that might change because you will have the base effect etc, for example in Q1 we advanced our diamond studded activation in jewellery to June last year and this year it will not be June. So to that extent there will be some base effect issues but for the year as a whole we believe 15 percent or something should be possible.


Sonia: How has demand situation been so far in the jewellery segment?


A: It has been better than the last quarter for sure but not as buoyant and positive as we might have expected, for example we have noticed that Akshaya Tritiya generally has been little lower this year than last year, in fact possible a trend over the last three years, we are seeing an importance of this one day event etc coming down. It maybe various factors which could be influencing this. One, people are giving less importance to cultural events like this and second, more younger women looking at adornment and therefore jewellery, accessories at lower price points etc - that also seems to be picking up.


Therefore, it's possible that some of those things are happening plus the fact that gold itself is not seen to be a very attractive investment these days compared to two-three years back. So, a combination of all these things but it picked up for sure after April 10, till the strike was going on to some extent, but I wouldn't say it's very buoyant; its better.     


Latha: The last point you made about gold not being the fashion of the moment even as an investment call. Whether you like it or not people buy jewellery when gold seems to be a good investment and these days when gold is not returning money as a commodity but financial assets especially the Sensex at 27,000 seems more lucrative way to spend money. You normally do not find people buying too much jewellery either. So this tepid demand could last several quarters perhaps till gold returns as the fancy of investors. So is there any strategy to reposition watches or reposition eye ware; it's such a small, insignificant part of your business. Is there a move to scale it up? Will you all juggle your three businesses?


A: The fact that gold is not an important destination these days is a given. The other thing possibly is the impact of government's action against black money - that's another reason why as a whole. However, I do not think it impacts Titan as much but from a macro perspective gold demand has been also softer due to the entire action against black money. So, it is clearly not as important an investment destination as it used to be in the past and therefore the tailwind that one had is pretty much lacking now. Having said that we are also noticing that whenever collections from our side are good, people like them, for example over the last one year we had two or three collections which have done remarkably well. We have been out of stock in many of those cases, for example Divyam, last year, was a gold collection, which did exceptionally well. This year, at the beginning we have seen Niloufer, it's a diamond studded collection which has been doing exceptionally well. If you can bring excitement to the category, bring products and collections which the customers would want to buy, they just come. So I do not see that as an issue. I think we need to start demarcating between gold as an investment and jewellery as adornment. As I said earlier, we are seeing people buying jewellery more for adornment these days.


Second, price points; we are going to be seeing in the future price points of jewellery coming down in the average selling prices and I believe that would happen because younger woman would want to buy jewellery as accessories and therefore they would come in for lower price points but they will buy more frequently. So those are the trend that we possibly would start seeing going forward. Therefore, it is upon us to ensure that the excitement in the category is maintained by bringing out good collections, jewellery at good price points and obviously design is a king. If we can go that, I believe we will still have a good market and the margins on these lower price products will actually be much better.


Sonia: When you expect the watches segment to get back into double digit growth. You are forecasting 6-7 percent in FY17 and now we are seeing, not only competition from the traditional players like Timex and the HMTs of the world but there is so much competition from something like an Apple watch. How are you planning to innovate at a time like this?


A: The bigger issue with the watch segment is that watch is more of an accessory these days rather than as a functional device. Therefore, unless the accessory, which is very compelling in terms of design and price points and everything else. It has to be a very desirable thing to purchase. It is not going to do as much as it used to do in the past. You are right, there is a lot of competition from wearable; it could the smart watch, it could be other thing which possibly occupies your wrist and therefore, it is upon us to also look at that segment and we believe it is an opportunity. People are going to buy watches; watch is a great gifting item but we see wearable itself as an opportunity and something like Fastrack could do very well in that category.

Therefore, in the future I assume, watches would include the smart watch category, it would include the wearable part as well and a lot of functionality can be brought into the existing watches. We are seeing this happening globally and I see no reason why that won't happen with us as well.

First Published on Jun 3, 2016 11:22 am
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