Titan eyes 25-30% growth in FY13

Eyeing a 25-30% top-line and bottom-line growth in FY13, Titan Industries is looking to take the jewellery business to the next level.

With increased gold prices reducing grammage volumes, the company is focusing on the diamond studded jewellery segment. It aims to take it up to 40% of the total turnover in the next two years or so.
In an interview with CNBC-TV18, S Subramanian, CFO, Titan Industries said, "Our focus is going to be on people migrating from plain gold jewellery to diamond jewellery. We have come up with affordable diamonds where you have diamond jewellery available from Rs 10,000 to Rs 25,000." Titan is also seeing better volume growth in its jewellery business, in comparison to the watches segment in FY13.
Titan Industries reported a sales turnover of Rs 2,281.77 crore in the fourth quarter of FY12 in comparison to Rs 1,777.94 crore in the corresponding quarter last year. The company also registered a net profit of Rs 144.28 crore in Q4FY12 against Rs 83.80 crore in Q4FY11.  Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video. Q: Could you walk us through what the outlook is for the jewellery business because in the last quarter you have seen a decline in volumes, your grammage has come down and now there is a fear that imposition of tax collected at source might hamper volumes going further in FY13?
A: You may be realizing - the data given by the World Gold Council for the last two quarters have seen significant declines. It's largely led by the increase in gold prices. Gold prices are about 35% plus over what it was the year before. With that it's extremely difficult to assume people would still buy the same quantity of gold.
Therefore, what we are looking forward to is actually on the value growth rather than the overall quantity growth. Let's not forget, our margins are based on our value and that's the key matrix for us.
The other thing we are tracking and would want to grow is our customers. Therefore, the matrix that we need to look at for the jewellery business need to be quite different from the volume only, it's going to be a value game. Added to that would be our focus on the diamond studded jewellery and we would like to take the percentage of studded jewellery to go up to 40% of our total turnover in the next couple of years or so.
The last quarter was quite good, we did a 32% share and those are the higher margins for us. Our focus is going to be on people migrating from plain gold jewellery to diamond jewellery. We have come up with affordable diamonds where you have diamond jewellery available from Rs 10,000 to Rs 25,000. We have also launched a recent campaign on affordable diamonds, which is going on now. 
The idea is to move people from basic quantity to the amount that they invest in their business. That's what we are looking forward to. We do expect volumes to be depressed. We had a 7% decline on year on year basis for the last quarter. I would assume the industry's decline would be significantly higher than that. We would possibly expect this to continue for some time. Q: You talked about doing 30% growth on top and bottom-line in FY12. For FY13, what would you set the growth targets at and how would you break that up between jewellery and watches, your two key segments?
A: We should be looking at a 25-30% top line and bottom-line growth in FY13 as well. That's our intent and the growth in the jewellery business should be more than the one in the watches business, basically because of the sheer volume of the jewellery business.
Our market share is around 5% or so and the headroom to grow is significantly higher. We are looking at expanding our network significantly in the current year. We have very aggressive plans of covering over 200,000 sq ft of retail space.
We already have over a million sq ft of retail space but the expansion plans for FY12-13 are very aggressive. We would be putting in a lot of money into our retail network and therefore, we would see the benefits more in the jewellery business than in the watches segment. But, in watches 20-25% growth is something that we are targeting in any case. Q: Could you give us a sense of how much retail expansion you are planning within the calendar year itself and how much of a slippage you are expecting on volume growth, will it be the 7% we saw in Q4 or you think it could get to a double digit rate?
A: When we talk about retail network expansion, not all the stores are company stores. In fact the proportion of company stores will be very limited. Most of the stores are franchises and expansion would come from franchising. It means, we don't take their cost.
Therefore, I don't really see a margin dilution as far as the jewellery business is concerned. On the volume side we will be seeing a pressure. I am talking of grammage here but, our aim would be to grow the number of customers and the number of pieces that we sell. Overall, if you look at a 30-35% top line growth in jewellery, that should be possible.
Other question which was raised sometimes back was the impact of TCS and so on. We are still waiting for the clarifications from the Finance Minister on this. There has been a lot of protest from various jewellers across the board. We need to wait and see how that pans out.
But, the idea is that if it works, if it is going to be implemented, its going to impact everybody. So we would have to work around that.
_PAGEBREAK_ Q: The fear in the market is, the kind of aggressive capital investment plans that you have might impact your margins in the near term. In FY13, what is it that you are expecting by way of margins?
A: Our margin should be generally in the line of what we have been achieving, which is close to 9.5% on the PBT basis. I would say, 9-9.5% would be the range. I don’t see much of a dilution on that. We should be able to achieve that. As I mentioned, a lot of the expansion is going to be franchisee led. So, it doesn’t really come into our books. Q: Have you laid out the amount of money that you are looking to invest in FY13 by way of a capital spent?
A: Yes it’s in excess of Rs 200 crore. That’s the plan now but, we will have to see how much of it can be actually spent because a certain proportion is going to manufacturing as well.
We are going to be spending a lot of money in our backend, as far as the watches and jewellery businesses are concerned. We are looking at a frame manufacturing facility in the eyewear segment as well. There would be a lot of investments into manufacturing and the rest of course, will be in retail. It’s going to be a year where we are planning to invest a lot. Q: Are interest costs pinching your profit performance as well, because that seems to have gone up quite significantly this quarter? Any plans to specifically scale down the interest cost side of things this year?
A: Let me clarify, the interest cost has not gone up as far as we are concerned. Practically, all the interest cost that we incur is on the gold only scheme which continues to be below 3%. What is happening now in the financial statements is that we have restated the interests.
What used to be clubbed under material cost earlier has now been shown under interest and therefore, the finance cost appears to be higher. But, the reality is, its just a reclassification of the statements. Q: You mentioned the kind of trajectory prices have taken through the course of last year but this year what is it that you expect to see on prices because that would impact the realizations that Titan would hope to enjoy?
A: We would definitely look at maintaining our margins. I think that would be the goal. We have been hoping that the inflation rates would come down. We were thinking the rupee might stabilize at around Rs 49-50 rates but, unfortunately it is over 53 now and these are the concerns that we have.
The rupee is clearly a problem because in the case of gold, which is of course a part, but it doesn’t affect our margin directly. It indirectly affects the total volume which we might be selling. As far as watches are concerned, we do import a lot of components and therefore, the rupee is of great concern.
We are going to have pressures on cost from what I see now. But, that’s something that we would want to pass on only to the extent that we can.