The Q2 results season is almost over and as companies are ramping up their efforts for Q3, they are also constantly looking over their shoulders as global economic tensions are on the rise. One such firm is Titan Company Limited, the famed jewellery and watchmaker brand. Titan’s share recently hit an all-time high in the run up to its Q2 results where it was announced that the company added 91 new stores across segments. As the company banks on the festive season for a robust Q3, it is also keeping its focus on international growth and the Union Budget 2023. In an exclusive interview with Outlook Business, Titan’s Chief Financial Officer (CFO) Designate Ashok Sonthalia talks about the company's growth, the global economic downturn and expectations from the Union Budget 2023-24. Edited excerpts:
Titan had posted robust performance in the Q2 of this financial year. What is your business outlook for the remainder of the year, given that Q3 has coincided with the beginning of the festive and wedding season(s)?
When we announced Titan’s Q2 results, we also gave some information on how we fared in the festive season. At that time, Titan witnessed very healthy growth across categories. Now, our Q3 has started on a very strong footing which gives us confidence that despite everything, we will be able to deliver growth. At the same time, we also aspire to have a better Q4 as compared to the one we had in the last financial year. Compared to FY22, Titan’s FY23 is set for delivering robust growth. We are aspiring for about 30 per cent growth in the financial year under consideration.
Previously, you have mentioned that the mid-market and premium segment is doing better than mass market offerings. Do you see that acting as a leverage for Taneira?
When inflation and interest rates are hurting consumers, those at the bottom of the pyramid spend a greater proportion of their monthly income on food and energy. This is why they tend to squeeze their discretionary spending. Now, compared to them, consumers in mid and premium markets are less impacted as they still have a large discretionary budget. Also, last two years of the COVID-19 pandemic gave an opportunity to these people to save more. So, what we are witnessing currently is that, across categories, the growth rate of premium segment is far higher than the growth at entry level points.
If we look at the long-term trend, Titan is also focused at entry level points because this is where new customers get enrolled with us. It's very important for us, especially in jewellery, to maintain the Rs 20,000-25,000 price bracket as it is popular. Overall, I imagine this trend may last for 12-18 months till the inflation and interest rate scenario improves. While Taneira is a mid to premium product range brand, it is also slowly extending its range towards the lower price band. Taneira has also launched sarees in Rs 4,000-5,000 price band as the idea is to stay relevant.
Titan's international business growth has been aggressive. Apart from your target audience of global Indians, what new strategies is the company deploying to achieve growth?
The idea is very clear that for physical retail stores, we go to clusters where there are global Indians. To cater to this, Titan is focused on building a very robust e-commerce layer. For example, out of the 50 states in the USA, we have identified 810 clusters where global Indians are greater in number. So, this is where we start setting up physical stores. For those Indian residents who are scattered everywhere and not clustered in just a few places, our e-commerce layer will be very effective in catering to their needs.
Taking advantage of a similar set-up, we are advancing in the GCC (Gulf Cooperation Council) as well. After we are largely done with GCC and USA, next could be Canada. You can expect a call on Canada within the next two to three years, though it depends on many factors. We are not just focused on introducing an Indian product, but we are also trying to regionalise it as per local design needs in order to be relevant; at the end of the day, about 15 per cent of our sales and profitability is also coming from other nationalities.
How many physical stores is Titan planning to open across business verticals? And what strategies are you planning to deploy for online sales?
Our retail expansion is very good and I expect it to remain like this for next three to four years. At this point, Tanishq, as a brand expansion, would be about 35-40 stores. Also, there are existing stores that are expanding and adding retail space. Even Mia and CaratLane are growing well and I think they are adding 50-60 stores this year while keeping the same pace for next two years.
As far as eye care goes, over 200 stores are getting added this year. When it comes to watches, it is through the word of Titan that even Fastrack is seeing expansion. Overall, while there is massive retail expansion, we are also keeping our focus on digital and e-commerce as both need to come together for favourable outcomes.
Gold prices have largely been on a declining trend. Do you see this trend lasting? And what impact will this have on the profit margins of Titan’s jewellery business?
When the US Dollar and interest rates are strengthening, they have an inverse co-relation with the gold prices. However, if we look at the rising inflation and the geopolitical situation, which stays at the edge, it has a favourable impact on gold. As far as Titan is concerned, since we completely hedge ourselves from gold prices, we remain insulated. This is also the reason why we don’t keep a view on gold.
From the market point of view, a stable gold price is helpful for us because people don’t defer their buying decisions. The current levels of gold are not expected to appreciate very rapidly. If it appreciates, it will be gradual, unless something adverse happens on the geo-political front. Stable gold prices favourably impact our profitability.
Tanishq’s Golden Harvest Scheme – the monthly gold savings plan - became a game changer in the industry. Does the company plan on introducing any more such schemes?
Tanshiq’s Golden Harvest Scheme (GHS) is in the public deposit space and the Reserve Bank of India (RBI’s) regulations apply to it. So, it has to be a certain percentage of our net worth and since Titan is constantly growing, the scope of the GHS scheme is also going up. Tanishq’s GHS scheme is very good for both customer acquisition and revenue visibility. Although we will continue promoting it, there are no immediate plans to introduce a variant of this scheme.
There is a lot of buzz on job loss and the world economy heading towards a recession. How do you see India getting impacted?
The services sector, particularly, the export-oriented services sector is getting slight impact as it is very technological in nature. Since digital transformation remains the core agenda across the globe, the discretionary part of it in USA and Western Europe is coming under stress. It is likely to remain under stress for at least 18 months.
In India, IT services and technology sector will continue to grow but slightly slower and this may have all sorts of implications on the economy. But other than that, I believe, India is in a much better position, especially since the country managed the COVID crisis well. However, since the financial world is globally interconnected, we just cannot be insulated. So, I would not say that it will not be impacted, but perhaps, the impact is going to be limited.
What are your expectations from the Union Budget 2023? What steps should government take to control inflation so that consumer centric industries are not adversely impacted?
Titan has many categories and we love all of them. But, you know, the jewellery lines have determined about 80-85 per cent of Titan’s financial results. India is also the second largest consumer of gold, particularly in the jewellery world and yet, we don’t determine the price of gold. So, customs duty is one aspect where we hope for a clear roadmap. A reducation in customs duty will help us link ourselves with the international market.
Additionally, a structural change is needed to control the country’s current account deficit. We can incentivise the recycling of gold, instead of mining it. As far as inflation goes, it is a very tricky issue even if India continues to grow and stay in a bright spot on the global map. Because the USA and European countries will raise interest rates to protect their currencies, even our central bank will come under pressure. Further, the supply side solutions are great and government has been doing a lot to manage these issues. It is the manufacturing capacities that need a little more speeding up.
