Poor Consumer Sentiment, Higher Gold Prices Hit Tanishq Sales, Says Titan MD
Titan lowered its expectations for jewellery business. Managing Director CK Venkataraman explains why.
Shares of Titan Company Ltd. fell the most in four months after the company cut revenue guidance for its mainstay jewellery business.
That, according to CK Venkataraman, managing director at the nation’s largest branded jewellery maker, is because of weak consumer sentiment and higher prices of gold. “People are seemingly wanting to conserve their cash and postpone high ticket items to a later date, and this has been aggravated by the price of gold,” he told BloombergQuint.
CK Venkataraman replaced the incumbent MD Bhaskar Bhat on Oct. 1 after the latter's 17-year stint, during which the company became India's largest branded jewellery maker.
The owner of flagship Tanishq brand lowered guidance for its jewellery business to 11-13 percent for the second half of the year from 20 percent earlier.
About sales in the ongoing quarter, Venkataraman said the first 33 days into the wedding season has shown a 10 percent growth that reconfirms the company’s decision to lower guidance.
Reacting to the company’s decision, analysts cut target prices for the stock.
Shares of Titan rose as much as 9.3 percent, the most since July 9, to Rs 1,165 apiece.
Watch | Titan’s CK Venkataraman on the company’s decision to cut guidance and more...
Here are the edited excerpts:
Let me first ask you about the jewellery segment. To what extent would you attribute the slowdown to general economic consumption which has been slow or to the higher gold prices? Do both these aspects go hand in hand?
The combination of the poor public sentiment towards spending in general aggravated by the levels of the price of gold in the quarter, both contributed to a slowing down of purchases into the category. In fact, today’s The Times of India report suggests that the imports in the quarter fell by as much as 32 percent which is a very high decline in the imports of gold to the country. That confirms this particular point. People are seemingly wanting to conserve their cash and postpone particularly high tickets and items to a later date. This has been aggravated by the price levels of gold as well.
The streets were also surprised by the fact that the hedges which had led to weakness as far as the jewellery segment is concerned. This is despite the fact that jewellery sales did see a 7 percent rise. My question then is, how do gold prices pan out for sales in general?
These hedges are a natural part of the business that we operate in. It is just that, the combination of the price of gold in the second quarter of financial year 2018-19, it’s the price we realised in the second quarter of financial year 2019-2020 and then the prices at which the gold was actually be purchased in the first quarter of FY20 or the fourth quarter of FY19. It’s a natural thing, we don’t give any more importance to it than it deserves. It may continue to have some kind of a smaller impact in the future depending on how prices rise. We look at the primary indicator which is, how many customers came in, what average ticket size they bought at and what are the total off-take growth that we got, which was a decent 7 percent in the second quarter of FY20. Of course, much below of what we used to. Taking into account the recent performances, particularly in the last four months we have given a guidance of between 11-13 percent for the second half of FY20 for the jewellery business.
We are not only in the second half of the financial year but also in the third quarter of this financial year. So, what traction are you seeing on the ground? This is around the time you start seeing sales pick up on the back of the wedding season. Have you also have taken that into consideration when you project an 11-13 percent growth in the jewellery business in the second half?
The growth in the first part of this quarter which is the first 33 days of the season was 10 percent over the same period over the last year. So, taking that, which has been reconfirming happening from the first week of August till then, and taking into account there are better wedding dates from November into the middle of January at least, we have indicated a 11-13 percent guidance for the second half.
I was just curious on how gross margins will also pan out especially given the kind of movement that we have seen in gold prices?
The gross margins themselves - both for the jewellery division and for the company -are not particularly affected in the second quarter. It is the sales being flat for the company and the marginal decline for the jewellery division that had the impact on the Ebidta margin. So, I don’t have any concerns about the gross margins as such.
With respect to watches, the growth has come on to over 13 percent in the previous year to now at 6.5 percent. Could there be further weakness based on the macro slowdown or are you expecting to maintain this growth rate as far as watches go?
In contrast, for the watch business in the same 33-day season period that I was referring to, that performance has been better than the exit growth rates of the second half of the second quarter. So, we actually are more optimistic about the watch business in comparison to the quarterly performance.
I understand that the eye-wear business continues to grow robustly but everyone was a little more curious about your saree business. This is your newest venture and while you guys have seen a tremendous development in its growth, the question really is that, where do we go from here say, over the one-year perspective? Are you looking at some sort of revenues in mind in the saree business and also in terms of operational profitability? How long for before you start breaking even?
Actually, I am at the moment not ready to share about the long question that you asked. Our focus is to actually build the key aspects of the foundation of the business; starting with the customer value proposition, the retailing business model, the manner in which the cross-margin profile will build up to a bottomline and that is the focus in the next 12-18 months. Given as we are scaling up in our stores in many of the cities, we are very excited about what we have created. We are very confident about how we will actually make it work but the actual retailing of that plan is under process and I’ll be able to share that in a few months down the road.
What is your estimate of the saree business market in general, in India? Secondly, could you share with us the revenue that the saree business has made until this financial year? Until this second quarter? The point that I am trying to make is, the scope that which you can grow and see growth in the saree business in this segment?
I am not able to recollect the turnover of the saree business in the last six months but it’s a double-digit figure so its that small because we just have a few stores today. On the first question, it is of the order of Rs 50,000 crores. So, that’s how big of an opportunity that is.