homeretail NewsTitan Company targets 25% growth for the next three quarters

Titan Company targets 25% growth for the next three quarters

Titan Company targets 25% growth for the next three quarters
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By CNBC-TV18 Aug 7, 2018 6:37:37 AM IST (Updated)

Watches and accessories maker, Titan Company Ltd, is targeting 25 percent growth for the next three quarters.

Watches and accessories maker, Titan Company Ltd, is targeting 25 percent growth for the next three quarters.

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In an interview to CNBC-TV18, S Subramaniam, chief financial officer (CFO), said that new products will be the focus area for watches and margins at 18 percent might not be sustainable for this segment.
Subramaniam said that watch and eyewear business will be the two divisions, where Titan Company is going to invest in advertising.
Edited excerpts: 
Q: That is a huge improvement both in terms of revenues and in terms of margins especially, 19 percent margin is some multi-quarter high, isn’t it? What went right in watches?
Watches has been having an excellent run for the last year, ever since we started the recraft strategy. It is about getting the brands right, the products right, the major improvement on cost factor, we ran cost programmes for the last two years and we had our voluntary retirement scheme (VRS) two years back. So I think a lot of work has happened on that, but importantly, getting the brand to back to its original sheen, investing in new products and so on and so forth has been the focus for the watch division for the last two years. It is starting to show results. So we can seen good market share gains.
There has been some – the current quarter, Q1 for example, there was also some higher primary sales in anticipation of the activation, which started at the end of the month. So to that extent, I think it would not be an absolute representation of performance for the quarter. So 18.8 percent or 19 percent is a little high from that perspective. But having said that, we seem to be on a good wicket, looking at good margins for the year as a whole, growth has been very encouraging, that is the most important part. At uniform consumer price (UCP) level, our growth is about 20 percent year-on-year, which is extremely encouraging. We are looking forward for a good year.
Q: I wanted to talk about the jewellery business, because Gulnaaz has been such a big success and there is one thought process, which is gaining traction that ever since that Nirav Modi’s scandal has happened, the high-end buyers are looking at a reliable brand and perhaps Titan could be filling in that void, is that a big market that you are looking at going forward?
Absolutely. Our focus areas have been high-value studded jewellery by Gulnaaz and fits in and of course, the wedding jewellery segment. These are two major areas of thrust other than the network expansion. Golden Harvest scheme, the new golden exchange programme, which is being doing very well. So the focus from a product perspective has been on these two areas and the response from the consumers have been very positive.
So Gulnaaz has been doing quite well. We had a fantastic July. I think we mentioned why the overall growth for Q1 was muted and that is because of the high base that we had, but July seems to be back on track and so, good growth hopefully for the next three quarters we should start seeing some 25 percent sort of growth.
Q: Give us a word on your advertising cost, which has gone up incrementally in Q1. As a percentage of sales, where are you looking at maintaining ad costs and what impact would that have on margins?
Two divisions, where we are going to be investing more in advertising – one is of course the watch business. We have seen a significant growth and we are seeing the impact of that as well in our topline. The other one is going to be the eyewear business.
This year, we have said that we want a good topline growth as far as eyewear is concerned. We are not going to be focussing on margins overall and the idea is that we invest in the brand and get it stronger and get that topline growing. So 16 percent growth in the quarter will mean that we are going to be investing more and more in the advertising. So, I think it is good to build a brand when you can.
As far as jewellery is concerned, I don’t think there will be any disproportionate investment in advertising. So, it's going to be the way it has been earlier because things are going well, we don’t have an issue there. When things are going well with the jewellery division, it makes sense to invest in the other two as well.
Q: What is your split of a studded jewellery and non-studded jewellery in that segment?
Last quarter, it was about 25 percent, which typically will be low in a quarter like Q1, where it's a plain gold quarter in a way, because the activation or the studded promotion happens in Q2, which is just now. Therefore, this quarter you would see a disproportionately high share of studded jewellery, but having said that, 25 percent for Q1 was marginally higher than what it was in the same period last year. I think it was 24 last year. So we have improved on that.
Q: The reason why I was asking is I would assume studded is more margins and you have said that even for this quarter, year-on-year there is more studded share, so should we see an improvement in margins in jewellery segment because you are doing more studded?
Yes, I would think so, because the higher the studded ratio, the higher the margin. Having said that, we have also stated that we want to look at overall growth and that includes the wedding jewellery segment, which predominantly is plain gold jewellery. It may have higher making charges, but it still is plain gold jewellery therefore lower margin.
Therefore, we don’t have – three-four years back, we said, we need to get something like 40 percent shares of studded for the year, I don’t think we are looking at that, because we want to grow in all sectors.
I think overall, when you grow like that, the operating leverage should kick in anyway. So overall, the EBIT (earnings before interest and taxes) margin should be better and at more than 11 percent now, that is clearly happening. So I don’t think it will be that fore-coming - while we are focused on ensuring that studded jewellery segment does grow, it would not be at a cost of plain gold jewellery also.
Q: You also have this gold return scheme and I think it is a zero cost scheme of some sort, would that be a bit of a margin headwind and overall for the company, where should we expect margins to stabilise here?
The Gold Exchange Programme, as we call it, has been one of the large drivers over the last year to a year and a half as far as topline is concerned. We have made the scheme very attractive. Two reasons – one is we attract consumers, new consumers into our brand and the other is it also helps in not importing that much gold. So, today more than 40 percent of the gold that we procure is coming in from exchanges which is a very good thing.
I don’t think it is margin dilutive. If anything it is neutral and at times actually margin accretive as well marginally. So, we don’t have an issue with that. It is a great customer acquisition programme and I think we will continue to promote this.
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