Titan Company sparkles in Q1 as revenue jumps led by strong jewellery business performance boosted by strong Akshaya Tritiya sales.
In an interview to CNBC-TV18, S Subramaniam, CFO of Titan Company spoke about the results and his outlook for the company.
Series of steps taken by the government of India to curb black money are helping organised companies like us. Goods and services tax (GST) will definitely help hopefully with more and more registrations happening, we would assume that the trade would be more and more formalised, he said.
The company also had some advanced sales in the last two weeks of June but to expect this sort of growth every quarter would be very unrealistic. “Our growth should be quite good for the year,” he added.
According to him, customers are coming in at higher ticket prices as well which is a good sign that there is migration from other jewellers. The company is seeing good traction in its two focus areas, high-value studded and wedding jewellery.
Regulatory tailwinds and company’s initiatives aiding earnings, he further said.
Channel checks show market share gain in practically every market for company.
Over 20 percent should be happening this year, I will be a little more confident on that number for sure, said Subramaniam.
On watches business, he said that the domestic business has done quite well. The volume growth in watches is at 9 percent led by a lot of new collections that we have come out with.
Exports have fallen 25 percent year-on-year (YoY), he further mentioned.
GST rate on watches is very high at 28 percent, it is the highest across the world and GST rate for smart watches is at 18 percent, he added.
Below is the verbatim transcript of the interview.
Latha: Do you think that this kind of a performance can continue? That GST has benefited you with some informal sector business coming to you?
A: I will go back a little. it is not just the GST, it has started about a year to a year and a half back when we had the excise duty on gold jewellery imposed, after that we had the demonetisation then you had the two lakh cash limit on purchases, I think it is the series of measures which the government has taken against black money, which possibly are helping companies like us, organised companies.
GST will definitely also help. Hopefully, with more and more registrations happening, we would assume that the trade would be more and more formalised. These are very good indicators for us. I would also like to caution that we had an excellent quarter, great quarter, we did have some advance sales in the last two weeks of June which were advanced from July possibly because of impending increase in gold prices after GST rate was fixed at 3 percent.
We mentioned that it could be around Rs 250 crore. So we did have a very good quarter, we also had the advantage of the base because of the first fortnight of April last year where the sales were generally very muted because of the strike, so we did have a favourable base but nevertheless it was a very good quarter.
Having said that, to expect this sort of growth every quarter would be very unrealistic. We are far more optimistic than what were before so we do believe our growth should be quite good for the year. Traction is good, new customer acquisition is good. I think another good thing we are seeing is that customers are coming in at high tickets prices as well and that is a good sign that there is migration from other jewellers right into areas where we are focusing which is now high value studded and wedding jewellery. These are two focus areas of us. We are seeing very good traction in those areas.
So what seems to be working is all the initiatives that we have been taking on over the last year to a year and a half, collections have been doing quite well. So I would put this as both regulatory tailwind which is possibly helping us along with a lot of initiatives that management has been taking over the last year for us.
Latha: Can you put a number to the market share gains?
A: It is a little difficult to put that because the market itself is not very organised and you don’t get numbers very easily but from channel checks that we have across the country, when we compare our growth with what we think others have grown, there clearly is a market share gain in practically every market. So that is a good sign. But we cannot quantify this. It is difficult to do that.
Reema: You are far more optimistic than before. Does it mean your jewellery business can see a growth in excess of 25 percent in FY18 as you had earlier guided? Is there an upside to it?
A: I wouldn’t want to give a number here. I think we initially looked at something like 18 percent, maybe it is going to be higher than that. I think it is should be higher than that going by what we have seen so far. A lot of initiatives are again in the pipeline for the year etc. I wouldn’t want to put a number. Yes, over 20 percent should be happening this year. I would be a little more confident on that number for sure.
Latha: What proportion of your jewellery sales is diamond and overall will the margins in the jewellery business be about 10 percent?
A: Yes, as overall profit before tax (PBT) margin has been over 10 percent and even this quarter it was that. That is good news. Diamond jewellery varies from quarter to quarter and that depends on when we have our diamond promotions.
For example, this quarter, Q2 which is July-September quarter, we have a promotion. Therefore, studded ratio, as we call it, is much higher. Similarly we normally have one in the last quarter of the year, January-March. So that quarter also it goes up. On an average, we look at the diamond ratio to be in the ballpark of 30-31 percent. That is what it has been in the last one or two years. So I would assume that that is something that we should be looking at.
Reema: You seem to be struggling on the watches business front, the revenue growth has been very muted and now going ahead, the GST rate of watches has also gone up. When should we expect a recovery for your watches business and what is the growth expectation there?
A: I think there is some misunderstanding as far as the watch division is concerned. We have tried to clarify that to some extent in our investor presentation but let me just spell it out a little more clearly. If you look at the watch business, the domestic business has done quite well. We have had a 9 percent volume growth which is unprecedented in the last so many years.
It has been a fantastic growth, it has led by a lot of new collections that we have come out with. The FastTrack reflex band, wearable segment that we entered is a runaway success. We are out of stocks practically everywhere. So the domestic business has done quite well. We have also not done a lot of the promotions, activations as we call it in the last quarter because of the GST shift. Therefore, it is not even a comparable base with the previous year. So I think the domestic business has done very well.
Where we have actually had a problem is on exports. Where we are down about 20-25 percent. That is why you are seeing the growth overall very muted. Export is something fairly way above our control because in the west, at least the Middle East has been very badly impacted. So there are issues on the export front. So this is unfortunately couching the good work which is happening on a domestic front. So on margins, we are holding on to our gross margins, there is no problem there. We are working on our costs as we have been saying. There are some other initiatives that we are looking at, so we will be looking at gross margin, overall EBIT margin improvements is well there. One is working on that but unfortunately there have been some issues on the export front.
On the GST rate, it is very high, it is fairly unfair to a segment like this where we manufacture our watches and at 28 percent, it is by far the highest rate of tax anywhere in the world for watches. We are requesting the government to relook at this. If you want to look at make in India, it is very unfair to have 28 percent on watches.
For full interview, watch accompanying video...
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