Titan Industries exploring gold export opportunities: Bhat
Bhaskar Bhat, MD, said that while the onus of exporting gold lies on bullion bankers from whom it buys gold, Titan too is exploring export opportunities now.
August 02, 2013 / 17:02 IST
Titan Industries feels industry effort on gold export will rise on the back of new norms announced by Reserve Bank of India and the company is also exploring export opportunities.
RBI last month passed new regulations on gold imports. It mandated that banks and other nominated agencies should retain one-fifth of every lot of gold they import in customs bonded warehouses and further gold import will be allowed only if they release 75 percent of that stored gold for exports."We have been buying gold from the bullion bankers. So the onus of export is on them and they should be able to find exporters because exporting gold with just a 5 percent value addition norm, which is what is required, is not such a difficult task. In fact Titan is also now exploring export opportunities," Bhaskar Bhat, MD, told CNBC-TV18 on Friday. Titan Industries' first quarter net profit rose 17 percent year-on-year to Rs 182 crore.Its net sales surged 42 percent from a year ago to Rs 3,088 crore in April-June, helped by strong sales of gold jewellery, the watches to jewellery maker said on Thursday.Its operating profit margin at 7.9 percent, down 170 bps, though, fell short of street estimates of 9.8 percent.Titan's jewellery sales last quarter rose 47 percent to Rs 2,614 crore, fuelled by a sharp drop in price of gold in April and a good wedding season in Q1.However, watches business revenue rose just 11 percent to Rs 402 crore. Bhat said that watches were discretionary part of the company's business and a slowdown in discretionary spending affected sales there.Below is the edited transcript of Bhat's interview to CNBC-TV18.Q: People have been quite nervous with the kind of changes that have been happening in your sector but you would have heaved a sigh of relief now that gold on lease is back?A: Yes, it is back in a different form but yes it is a reversal of the gold on lease decision that was taken by the Reserve Bank of India (RBI) a month back or so, except that now one has to export but the onus of export is on the importer, who is the bullion trader or the bullion banks. So, overall it is good. It is better than what it was a month and a half back.Q: What do you think will be the final impact on Titan Industries of the new regulations because of the export obligations that have been spoken about and the kind of direct use norms which have come in. Where will Titan stand in a few months time after these norms are implemented, would you grab more market share from some of the other players in the industry, are you quite clear about maintaining volume growth given the new norms?A: Let me separate this managing the finance versus the managing the market. I think our approach to consumers’ retailing products pricing is not going to change. So, we will have to figure out how to manage the procurement of gold and the funding of gold.On the latter, it is not very clear but we believe that there is a need to export if you have to import. Now the import requirements – the actual requirement as estimated by the government is about 500 tonnes for domestic use for jewellery, whereas it had gone up to 900 tonnes last year. So, that additional 400 tonnes is sitting as financial instruments as in gold in form of coin and bars and so on.With the regulation, I should imagine players who are in the organized sector and who have a certain way of operating would benefit more than the traditional market. We have been buying gold from the bullion bankers. So, the onus of export is on them and they should be able to find exporters because exporting gold with just a 5 percent value addition norm, which is what is required, is not such a difficult task. Infact, Titan is also now exploring export opportunities. So, overall, nothing is going to change in our operations at the front. It is at the back that we have to figure out how to procure gold.As of now, for a couple of months we don’t see any problems and in the long run. We should be able to iron these things out on the export/import proportions and so on.Q: On that part which the clamp down is being attempted, the bars, coins part of it, what is Titan’s exposure to that part of the business and how much of an impact do you see coming in from that side as sales dry up?A: It is very small. We have already stopped sell of coins and bars as of July 15 and this is the right thing because that is what the nation needs. The value addition is small and then it doesn’t go into rotation, circulation. So, employment creation and value addition everything just stops once you have bought a coin or a gold bar.It is not significant, let me leave it there. It was much less than 10 percent and profitability wise, it is a very small margin business. However, it was required to keep it in the stores because one is considered as a jeweler in this country only if you sell coins and the low value added products. But we have stopped that.Q: Let me come to the consumer side of the business because company after company is telling us that they are seeing more and more pronounced signs of sluggishness in demand. Your watches segment is not growing very fast. So, are you concerned that some of the consumer facing businesses like watches, eyewear etc could be entering an even more sluggish demand phase?A: Yes. There is sluggishness in the market place and barring May and some parts of June retail sale, the growth was not healthy. However, let me separate watches and eyewear. Watches is significantly discretionary and therefore it has got impacted more and new products, new initiatives do end up delivering greater foot fall into the store i.e. launch of new products.Eyewear on the other hand is a more utilitarian product and it has been growing extremely well. Like growth and total growth, everything has been quite good and therefore, the conclusion we draw is consumers do have money but they need a reason to spend that. They are not as easy with the purse strings as they were before. When they need it, they will spend and when it is alluring in terms of a new watch like a Raga or a Titan Edge they do come and buy and pricing is not a problem. So, the answer lies in creating desire which leads to demand. I can say that much. Beyond this, yes these are difficult times. However, the jewellery part of the business both in plain gold, diamonds we are seeing some reduction in growth rate but we have also launched a new product, new collection called Inara recently which is doing extremely well, working women jewellery, Mia is doing extremely well. So, one has to be able to identify segments who are willing to spend and are not so affected by the current sentiment.Q: The other issue is with your margins. Even if you take out the inventory right down this quarter, margins are hovering around 10 percent. Do you think margins will stabilise around here because of product mix or any other reasons because EBITDA growth is not quite matching the kind of volume growth or revenue growth that you are witnessing?A: I think that is driven by the price of gold. More than 40 percent topline growth has been driven by a very Indian phenomenon of people buying gold and buying gold smartly. So, Q1 price of gold dipped sharply and after waiting for a long time, consumers have come into the market and acquired gold and gold jewellery.Despite that the margin drop is not that sharp especially in the jewellery business. It is the mix because jewellery has grown to now 80 percent of the total and it is the lower margin business that there has been a total drop in the margin but there is a drop in the margin even in the watch business.So, combined we have had a drop but we do not see that as a big concern. We have to manage cost certainly but the company’s effort will be on achieving even greater scale. That means topline growth because that gives us huge leverage on profits and increasing quantum of profits and therefore, holding on to the percentage margin will be possible. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
