Titan eyes 20% sales growth in FY13, says MD

Watch, jewellery and eyewear maker Titan Industries reported a net profit of Rs 156 crore, a growth of 9% year-on-year on the back of weak consumer demand. The company also reported net sales growth of 9% at Rs 2205.7 crore in the first quarter of FY13.

In an interview with CNBC-TV18, Bhaskar Bhat, MD of Titan said consumer sentiment has been weak and jewellery segment has been down because of fewer wedding dates and a weakening rupee. Moreover, walk-ins at stores were also poor. As investment in gold is losing its sheen, the company has launched new products and schemes for diamond jewellery, informed Bhat adding that the diamond jewellery segment has grown by 22%.
However, Bhat is not very optimistic about margin improvement and feels it is unlikely for profit to grow faster than topline. Titan expects FY13 sales growth at 20%. Here is the edited transcript of the interview on CNBC-TV18. Q: You have indicated that a 30% revenue growth which you have seen in the past three years looks difficult for FY13. Could you provide us with a realistic guidance of what your revenue will look like? Will it be close to about 20% for FY13?
A: We do not provide guidance in the manner in which software companies do. These are just targets that we had set for ourselves, which is a 30% growth. That certainly doesn't seem realistic anymore because of the market sentiment. We would be happy if we achieved a 20% top-line growth. Q: The sales in the current quarter itself have been a little under the weather at about 9.2%. What were the highlights of this quarter?
A: 9.2% is the highlight because it's way below our normal performance. Sentiment has been weak, however the watch division grew 14% plus in top-line. I think the surprise on the negative side really was jewellery. It was driven by many factors. One is the wedding days as we have mentioned.
But weak consumer sentiment is also because of general inflation. Consumers are not going so easily for conspicuous consumption items like watches, jewellery and the worry about the weakening rupee also remains. Overall, we are seeing across the board, except perhaps in FMCG brands and products there is a weak consumer sentiment.
Walk-ins are poor. It is not doomsday scenario. It is just that people are cautious and very, very careful with their money.
_PAGEBREAK_ Q: If the last quarter was impacted by these one-off things like the wedding season etc. you saw a volume decline of about 20% in your jewellery segment. In the coming quarter, what would the volumes look like in the jewellery segment and when could we expect an improvement over there?
A: We cannot wait for the market to improve. We will have to do something about moving customers back into our fold. So we have launched several initiatives in new products or even as of now there is a very attractive scheme for diamond jewellery. The silver lining in all this is we have been able to get the price that we want and diamond jewellery sales have grown almost twice the rate of the average.
We have grown 22% in diamond jewellery. In watches too, the more premium watches have sold better. The game has to change essentially by pursuing product mix opportunities. Therefore, we can't really predict what would be the likely volume growth and decline etc. We have to just chase certain targets and in a very targeted manner where opportunities exist either by way of segments or by way of geographies and so on. Q: The slowdown in the jewellery segment has come at a time when perhaps jewellery would not have gotten that expensive. All the way from 2010 through to 2011 you actually saw an uptick in jewellery prices at a steady rate and yet sales performance was excellent. Now the slowdown is coming despite jewellery prices being more or less steady. Does that tell you something that the slowdown is a little severe and could be a little sticky, stay up there for sometime?
A: Possibly. What's happened is if you analyze the data, certainly coin sales for example have come down quite drastically. Plain gold is usually bought with investment sentiment more than adornment and that is perhaps losing sheen, whereas diamond jewellery which is bought more for adornment purposes has actually done better. When I said you have to look for opportunities rather than wait for things to change, there are opportunities in these segments.
The women's segment, Fastrack, these are the things which we will pursue so that bottom-line growth is protected and enhanced. Therefore, top-line whether volume will grow or not is one question but because of the strength of our brands and the unique distribution network we have, it is possible to leverage and squeeze profits out of this. Q: Going with a 20% revenue growth, can we see an improvement in the margins which will help profits grow at a little faster rate? What’s the internal target that the company is setting out?
A: Unlikely that profit will grow faster than top-line because the mix has to then change in favour of watches or significantly in favour of diamond jewellery which is not likely to happen. But, there are other small pieces which are kicking in because we have a portfolio. We have watches, jewellery, eyewear and precision engineering.
Eyewear and precision engineering for example, has turned a corner and therefore, it is making money which is precision engineering. Eyewear has significantly reduced losses and that is taking away less from the profit pool. So there are factors which are working towards helping shore up the profits or increase the profit, but margin improvement is unlikely. Q: What will your strategy be for the rest of the year or for the next year or so? Will it be expansion into more cities, more retail outlets or will it be more concentration on higher value add? What really is the strategy?
A: It's a combination of both. We are not stopping floor expansion. We would tinker around a little, maybe on World Of Titan we will be more selective, but say Fastrack, Helios and Tanishq are investments we are making for the future and therefore, we would not like to hold back, except we will be a little more careful on where we open them.
The number of closures have to come down because the closures are the ones which lead to greater loss in the retail system. We had to be a little more circumspect about where we open. But, otherwise we are not changing our long-term investment strategy in distribution. You are right. There is great opportunity in tinkering with the product mix.
For example the accumulative price increase in watches is about 17% and consumers have paid that. There is a growth of 14.4%, so those are the opportunities available to be able to sell more expensive watches and today India is accepting higher prices in watches. Therefore, there is still a lot of ammunition for us to play around.
_PAGEBREAK_ Q: You spoke about gold coins falling and diamond jewellery rising. Can you just give us some numbers on what is the percentage uptick in diamonds and downtick in gold coins?
A: Growth in total jewellery business is about 11% retail, but within that diamonds grew 22% and it is a double. Therefore, plain gold actually is much lower than 11%, that's one point. Within that coins is actually a decline. It's a decline in terms of numbers and value also. That indicates investment sentiment in gold is now reining, but now again gold prices have started rising. It might come back. Q: For FY13 then what's the growth that you are expecting in individual segments like jewellery and watches?
A: Very difficult to speculate at this point in time. As I said, 30% was a target that will have to be revisited to about 20%. How it will pan out in the different divisions is still to be judged because we are in the middle of the second quarter and there is a target we are chasing rather than working it out.