Barrage of product launches helped weather note ban storm: Titan

After Titan Company beat expectations and put up a strong show in the third quarter, Managing Director Bhaskar Bhat said a "barrage" of product launches had helped the company weather the storm triggered by the note ban last November. On Tuesday evening, the Tata group firm reported a 13 percent increase in standalone net profit at Rs 255.75 crore for the third quarter ended December 31, 2016. The company had posted a standalone net profit of Rs 226.15 crore in the same period last fiscal.Speaking to CNBC-TV18, Bhat said that demonetisation had been an "unparalleled and unexpected event" and the results could have been much better had it not taken place. He said the festive and wedding season had provided a fillip to the company’s jewellery and watch businesses.The income from watches was at Rs 508.26 crore, up 5.1 percent from the year-ago quarter. The company's jewellery businessrecorded a growth of 15.4 percent with an income of Rs 3,255 crore. Bhat said he expected topline growth to continue.
He said that a positive of the note ban was that it had prompted the migration of several unorganised players to the organised sector, which could change the dynamics of the retail sector.

Bhat said the situation post demonetisation was returning to normal and he did not expect growth to slow down. He said the Goods and Services Tax, expected to be implemented in July, would also benefit organised players.The stock market reacted positively to the company's above average performance, shooting up 10 percent in early trade on Wednesday.Below is the verbatim transcript of Bhaskar Bhat's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Anuj: Strong numbers in the jewellery segment, what went right for you because there were so many fears about what demonetisation could do but these numbers clearly say that maybe those fears were unfounded. Your first thoughts?A: I don’t know why people had any doubt about where we would go. Demonetisation was an unparalleled, unexpected event but it would have been much better if not for the demonetisation that is all I can say.Thanks to exceptional work that we have been doing in terms of new product introduction, new collections, generally marketing, smart pricing, smart activation across the board. So that has worked apart from our network size increase. So the point was we also had a very good festive and wedding season combined in Q3 but demonetisation dampened it for a few weeks thereafter. The rate of growth was much higher before that.It is coming back to normalcy and the reason is that we have got migration perhaps from the rest of the industry to our business model, large number of customers feeling safer to buy at Tanishq rather than anywhere else. Also, the other jewellers have got affected because for large numbers of them their entire supply chain was cash from the customer facing and to the backend whereas in our case at least customer facing end was relatively lower in terms of cash but the backend was entirely non-cash. It was cheque with our vendours.Therefore, our supply chain continued. So products were available for consumers to buy.Latha: As the demonetisation impact wanes and others are on their feet, should we see therefore a different Q4 altogether? Will it be higher or lower than Q3?A: No, leave the demonetisation effect out. We would have got migration, which is a kind of a bonus and that is going to continue for a long time because the shape of the industry is going to change. I am talking about the retail part of it. Consumers is another story because consumers will continue to buy because of design and pricing and brand and so on.However, that benefit apart, I was telling you that it is because of the introduction of collections like Shubham and before that Queen of Hearts and Niloufer etc continuous barrage of product introductions that we have been able to get this growth rate.Demonetisation -- we have always talked about an unorganised sector getting organised, the informal sector versus the formal sector that is the new language and I think the hard work over the last 20 years is beginning to pay now. That is the bonus.So we will continue to grow. We were growing at a much higher clip before demonetisation, that has come down but we will continue to grow. Q4, yes, it has started off well.Sonia: That is about your jewellery segment that you told us how you have seen market share move from unorganised to an organised player like yourself but what about watches? Over there, although the growth is good, not as bad as feared but it is still not in double digits. You have seen about 5 percent growth in watches, at what point over the next one year could we see the growth in watches return to double digits?A: Let me explain the difference. In the watch business, the distribution is slightly different, jewellery is entirely retail, controlled almost controlled entirely by the company. 230 odd stores across our brands. The watch business however has retail intensity only for about 50 percent, the balance is the watch trade and there, much like the unorganised jewellery industry, the transactions are all in cash. These are small retailers in far-flung areas as well as within the cities and the sales there got affected and that has taken a while to come back.Again, if it had not been for the demonetisation, the growth rates were double digit in that quarter but it has got affected because of that. So you will see again even in the watch business -- thanks to demonetisation or the remonetisation plus goods and services tax (GST), which is around the corner in a few months from now, that will again benefit an organised player like us. Independent of that several new initiatives especially in the smart space by the watch business Octane, Raga, some work that has happened in Fastrack and the growth rates are slowly creeping back.Anuj: This 15 percent sales growth and 15 percent EBIT growth, this counter view that post demonetisation, you saw a lot of rush towards buying jewellery. Do you think this kind of sales growth and EBIT growth rate can continue? You are saying that you won’t see slowdown but can the pace continue at 15 percent?A: I am confident that the growth rate of topline will continue, the EBIT growth will depend on the product mix which is essentially in jewellery and we have seen studded sales grow quite rapidly in the first two quarters, it is only in the December month that because of timing of the schemes in the two years that the studded percentage -- I am talking about diamond jewellery -- was less at 21 percent this time. So, we are confident of a good growth of topline and once topline grows in jewellery, the bottomline for the company also grows well.15 percent was our target for jewellery growth and that we are confident of achieving.Latha: I take your point that as the sector formalises with GST, an organised player like you will definitely be able to grab a larger share but what was the World Gold Council (WGC) telling us that the demand for gold jewellery in India dropped to record low, they called it some seven year low or something like that, record low of 662 tonne. Is gold as the investment choice in India beginning to recede at all, will that impact your secular growth story?A: We have always looked at gold as an adornment rather than investment. Of course you cannot deny the customer that it is also an investment. It is also a store of value. WGC’s figures are based on imports and there is some estimate of consumption but it is not -- our figures are actual retail sales growth that we report.So to us, the growth continues, consumers want to buy jewellery, increasingly diamond jewellery, which is for adornment, the investment bit which is a large part of coin sales and plain gold jewellery sales that has been impaired and impacted because of regulation and government action, which is the right thing to do because gold being stored away in a vault is not in the interest of the country.Sonia: Are you completely phasing out on shutting down all the gold plus stores and what would be the costs involved shutting it down or any kind of restructuring?A: Not significant because most of them are going to get converted to Tanishq. So it is only the revamping of the store and the revamping of the stock. So there is some impact but it is not significant.If franchises were to be compensated then it would have been a problem. That is not the case. Most of the stores are getting converted.