See weak demand, no growth in jewellery biz in H1FY16:Titan

The company will continue with its expansion plans irrespective of soft demand and plans to add one lakh square feet this year. It is expecting a reasonable growth for FY16 as a whole, he concluded.    

Below is verbatim transcript of the interview:

Q: When Titan’s earnings do not grow it is a matter of regret for the entire economy when a marquee brand is not selling as much as people would like it to sell. Can you just blame it on the fact that gold is no longer in the fashion? Even watches have not done well.

A: It is not just gold, consumer sentiment hasn’t improved as much as we have been expecting for the last year plus. While sentiment as such has been better, it has not been translating to higher spend. In our own case, we have had other complications.

The Golden Harvest was a major issue for us and it used to contribute 25-30 percent of our revenues. Suddenly if you don’t have that on a quarterly comparative basis you will find that hit very bad.

We somehow bucked the trend last quarter and everybody was surprised. If I am not mistaken on your own show I said that performance is not as great as it appeared to be last quarter. It was more of a feeling that Golden Harvest didn’t matter. The base was very low the year before which was not the case in Q4. So, the impact of that is happening.

We have also had some other issues. The industry itself has seen decline in growth in the quarter – that is what we understand. Particularly January and February there were significant discounts to gold rates because of what people expected to be a significant rate cut i.e. customs duty cut in gold.

It is very likely that people just postpone their purchases. From March onwards things have started getting a little better. So, one is hoping things will be better going forward.

Q: So far you have been holding on to double-digit margins. Even in the quarter gone by you did margins of around 11 percent. Given that you have changed your strategy, you have reduced this price premium on gold jewellery do you think in FY16, at least in the first half of the year, we could be seeing single-digit margins for Titan?

A: A little early to see but it is possible that margins will drop. We are rationalising our prices a little. The main idea has been that the growth is getting difficult to come by and therefore, market share gain is the route to take. It gives offers far better value to a customer and so, we will do that.

One is hoping that volume growth; sales growth should help the operating leverage and therefore, hold margins at current levels. However, it is very likely that there would be a dip in the initial period.

Q: I understand that there were specific problems with the jewellery segment expectations that the import duty hike will go away would have postponed purchases but watches clearly is a reflection of poor demand. Over there also are you outperforming or performing inline with the industry or is this a question of brand positioning, new launches, something specific to your company? Do you think see things getting better in FY16 if you got your products right?

A: We are getting our products right and that is reflecting in how customers are perceiving us. I don’t see an issue there. The economy is very soft, the demand is very soft and I don’t see us losing share anywhere. So, it is just a question of industry itself not performing as much as we expect.

We dominate the industry. It is not that some new competitor has come and has totally taken us out; I don’t think that is the issue. Soft demand, hopefully things will start getting better.

Q: Do you see any green shoots at all especially in the watches segment? I am pinning on watches because gold is really one-off. We are emerging from a period of very high gold consumption to perhaps falling gold consumption and a whole host of policy confusions over there. So, if we only took watches as an index of urban consumption or the health of the economy, are there green shoots in the last 40 days or the first 40 days of the current quarter?

A: Too early to say and I don’t see any major shift in the first half. Now, unfortunately as we have seen the rupee devaluing, interest rate cuts are going to be that much more difficult, therefore leaving lesser money with the customer. Lesser discretionary spend is going to be the norm for at least for some more time. I don’t know where the rupee is going to end up with but if it continues this way and with oil prices inching up, it is not great news.

Q: I want to move to jewellery segment because this time, of all the concerns you have seen, there was a big decline of around 15 percent in your jewellery segment because of the discontinuation of the Golden Harvest Scheme. However, going forward in FY16 in the first half what kind of realistic growth trends could we see in the jewellery segment?

A: First half is going to be very difficult to grow at all. One is that we won’t have the Golden Harvest Scheme. Secondly, in Q2 last year we did that forced redemption of the Golden Harvest Scheme.

We grew some 64 percent that quarter. So, there is no question of growing in the first half really because we just had to advance the sales in the last year. So, it is going to be very difficult.

One is only hoping that customer traction improves significantly and that is with this new pricing rationalisation that we have done. One is hoping that that would bring in more walk-ins and new customers more importantly. Hopefully while we might not have a big growth but one is hoping that it would set the platform for the future.

Q: Time of urban distress would perhaps mean cheaper capex plans for store expansion. What are the store expansion plans and will they come at lower capex costs; some colour for FY16?

A: No, that is one thing I don’t think we have stopped. Over the last three years despite lower growth we have still believed very strongly in the India story. We believe in growth in the years to come and therefore we believe that we should be well positioned for that when it happens.

I don’t think we are slowing down on network expansion at all. We plan to add 100,000 square feet this year as well, about 30 stores in jewellery alone.

We will have more stores in eye wear and watches as well. So, I don’t think we are slowing down on the expansion of the network.

Q: You said the jewellery business may not grow at all in the first half. So overall, for FY16 what kind of growth if at all do you see and also how is the new gold deposit scheme shaping up?

A: We don’t give guidance. We don’t want to give guidance particularly now with all these uncertainties but we do expect reasonable growth for the year as a whole because the second half hopefully should have much better growth than the first half. So, that is one thing.

On the Golden Harvest Scheme, it is picking up quite well. There were initial concerns, people didn’t understand the scheme and so on and so forth in the first few months. However, post February, March we have been doing quite well. The amount is limited to 25 percent of networth so it is going to be less than half of what it was earlier but at least traction is very good now.