Bling It On: Should Titan worry about Aditya Birla Group's Novel Jewels?

When Aditya Birla group's Grasim Industries announced its foray into the paints segment in January 2021, all paints stocks, including market leaders Asian Paints and Berger, tanked.

The same conglomerate has now announced its entry into the retail jewellery segment with Novel Jewels, but this time the Street is not too worried about market leader Titan losing its sparkle.

"It would be too soon to expect an impact on Titan at this stage," said Abneesh Roy, Executive Director, Nuvama Institutional Equities. "After all, jewellery is a business of trust."

Back in the early 2000s, when Titan entered the jewellery business with Tanishq, it won people’s trust by introducing the Karatmeter in its stores. The proposition was simple: use the machine to verify if the jewellery sold by your family jeweller is 22-carat gold or not. That strategy was to drive home the point that local jewellers were not trustworthy.

"Brand creation in jewellery takes much longer than other discretionary categories," said Roy.

Tanishq has managed to maintain its pole position despite competition from several new brands. The company also caters to working women with its Mia and Zoya brands, which gives it access to an additional consumer segment.

So, Novel Jewels might find it tough to make a splash in this market.

The numbers game

Aditya Birla group will be investing about Rs 5,000 crore in the new venture and set up large-format jewellery stores across India. Analysts expect Novel Jewels to open about 150-200 outlets.

"However, this is only a rough estimate. It is unclear which model the group plans to adopt, such as having franchisees or setting up its own stores. The number of stores would vary greatly depending on the group's strategy," said Aman Soni, Head of Operations at Prudent Equity.

In comparison, Titan has over 540 jewellery stores, including in Dubai, Abu Dhabi, and the USA. "With expansion plans outside India, Titan has little to worry about," Soni added.

What is Titan up to?

According to a report by Kotak Institutional Equities in April, Titan reduced franchisee incentives for Tanishq stores from Q1 FY24, indicating the management's focus on expanding jewellery EBIT (earnings before interest and taxes) margins, or defending the same in the event of any rise in competitive intensity.

"On a blended basis, this change would aid Titan’s standalone EBIT margin by about 50 basis points over two years (slightly front-ended)," said Kotak.

The consumer discretionary major posted a standalone net profit of Rs 734 crore for the quarter ended March, up 50 percent over Rs 491 crore reported in the same period last year. Revenue from operations surged 33 percent to Rs 9,704 crore for the quarter.

The company’s jewellery business grew 23 percent on-year, with 31 new stores added during the quarter. The stock remains a 'Buy,' with many brokerages expecting it to breach the Rs 3,000 mark soon.

At 10.30 am, Titan was quoting at Rs 2,885 on the National Stock Exchange, about 0.28 percent higher from the previous close.

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