New Golden Harvest Scheme to boost sales from Dec: Titan

Absence of Golden Harvest Scheme due to regulatory issues and softening of jewellery demand led to weak earnings in the second quarter this year, says S Subramaniam, CFO of Titan.Speaking to CNBC-TV18, Subramaniam says the company will post a “decent growth” December onwards on the back of New Golden Harvest Scheme.On the watches business, he says it has been hit mainly due to slackness in discretionary demand and that the company is working to make products more interesting and relevant to consumers.Below is the transcript of S Subramaniam’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Latha: Not a very good morning if one looks at the numbers. Revenues are down 25-26 percent. The jewellery revenues are down 32 percent and watches where one would think there should be a urban consumption oriented push is up only 4 percent.A: Let me give you the background first. We all know that last year, same time we had to stop our golden harvest scheme which was a large revenue generator for us, contributing about 30 percent of our jewellery revenues. This quarter particularly, last year, because we had to close the scheme due to the new companies act. We had to stop the scheme and start it all over again from the end of November. It contributed 54 percent of the revenues in the jewellery division last year. Therefore, if you had a 60 percent growth in the previous year, it is extremely likely that you cannot grow on top of that. So, even if the market had been fantastic, it would have been almost impossible to go over that hill. So, I think the context needs to be understood by everybody that we faced significant regulatory issues over this period and not to say that the market itself was not all that great. There has been a definite softening of the jewellery market, thanks to volatility in gold prices and so on. So, there has been that impact as well. But, particularly for us, the impact was far more severe because of the golden harvest issue.Now, with this quarter, the second quarter that is the July-September quarter, we are over this problem on a base effect. Going forward, that is from October-December onwards, you should start seeing growth and very decent growth at that. Our own Dussehra sales have been quite good, very encouraging certainly, and we expect to see very good growth starting from now onwards.So, it is something which people who knew the business, who understood this, would have appreciated it. So, we have gone through tough times, there is no question about that, but going forward, one is far more hopeful.Sonia: Let us talk about your other segment which is your watches segment. Over there as well, the sales growth was up just about 4-odd percent, so that disappointed the street. By when do you see a sustainable revival in demand in the watches segment?A: Watches are hit pretty badly by consumer discretion effect. I think gold is a different thing altogether. There is some inelasticity of demand as far as gold is concerned because of weddings and other customary reasons. But on watches, it is very discretionary and therefore, it is getting impacted far more than anything else. Yes, there is the phenomenon of a share of wallet which we believe is also getting spread across other categories, maybe taking some of that away from the watch business. But, having said that, I think it is also upon us to make our products more exciting and relevant to the consumer. We are working on that and hopefully, in the not too distant future, you should start seeing more collections from our side which will be far more relevant to the consumer. So, till such time, I would assume that the growth is going to be a little muted. The good thing about the watch business, if you noticed, was that the margins started picking up, and that is a good thing. Our gross margins have been quite okay. And at the earnings before interest and taxes (EBIT) level also, our margins of course, touch 15 percent on the back of a slightly lower advertising spend. But having said that, I think we are doing a lot of correction on the cost side, re-organisation, so on and so forth. So, you should start seeing the benefits of the EBIT margins getting up over the years. So, I do not think we would be very concerned. Yes, we would want far more topline growth and hopefully if more relevant products come into the market, we should start seeing that as well.Latha: Jewellery is still about 60-70 percent of your total revenues. You said Dussehra was encouraging; what do you think you might be able to do in terms of a year-end revenue growth where I would assume volatilities have smoothened out?A: I would not want to hazard a guess on the overall revenue growth for the year, but all I can say is that the Dussehra on a year-to-year comparison basis has been very good. We have grown about 20 percent which is exceptional under the circumstances. And the other benefit that we can start seeing is the benefit of the new golden harvest scheme which was launched, as I mentioned, in the end of November, last year. Now, sales from that scheme will start kicking off from December onwards. We expect about Rs 400 crore or so of sales from that alone in the fourth quarter. So, that would be a Rs 400 crore sale without a base of the previous year. So, I think you should start seeing some better growth numbers for sure.Sonia: The fear is that even if the sales improve, a couple of issues like lower making charges, discounting in the instalment linked sales could perhaps, pressure profitability, even in the second half of the year. From the 7.6 percent margins that you clocked in overall, what could be the margins in the second half you think?A: Again, I would not want to give up margin numbers as such but, we are going to go back to the margins that we were used to earlier. You need to understand that when topline suffers because of various reasons, it has a direct impact on the EBIT percentage. So, for example in this last quarter, we only did about 6 percent as far as the EBIT margin is concerned for the jewellery business and that was purely because the sales were significantly lower than last year. Now, on a gross margins percent, despite a significantly lower studded share which was about 24 percent this quarter compared to 35 percent last year, we still managed to do the same gross margin rate which is exceptional despite the changes in the making charges that we brought about from April onwards.So, I think we have been able to manage through a better mix of products. Studded ratios, while they were low, now are yielding good margins as well. So, one is looking forward for that and even the discounts on the golden harvest scheme, are going to be lower than what it was in the old scheme in any case. It is at least 25 percent lower than that discount of the previous years. And most of that will not happen in the third quarter as well. The discounts will be largely in the fourth quarter. So, I do not think we will have much of an issue on the margins so long as we start growing on the topline.