Titan is banking on studded jewellery to gain marketshare going forward as it gives better margin than plain gold. In an exclusive interview to CNBC-TV18, S Subramanian, CFO of Titan said growth in studded jewellery segment has been quite encouraging in the last couple of quarters. Last year, this segment contributed about 28 percent to the overall business of the company.
He informed that the company has gained immensely from Golden Harvest — the 11+1 scheme — which will pave way for a bumper Q2. Although the scheme has to be closed down, Titan is planning to come out with another scheme which is more compliant with the New Companies Act by next quarter.
Below is the transcript of S Subramanian\\'s interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.
Sonia: Just want to put forward to you one rationale that Morgan Stanley has stated where they say that they have a conservative forecast of 170 bps improvement in your jewellery EBIT margins going ahead from now for the next two years or so, so they foresee a good amount of operational improvement in the business. Can you take us through what your own assumptions are as far as the jewellery business is concerned?
A: I will not be giving you numbers on this but I have not read this Morgan Stanley report. I don't know the basis on which these numbers have been arrived at by them but what we are seeing possibly now and hopefully in the future as well is clearly some improvement in the studded jewellery market share and share of our own business. So we have been sub-30 percent in the last year and we are seeing maybe better studded share as we go forward and as you know studded margins are much better than the plain gold margin. So from that perspective, there could be some improvement in margins.
Secondly, as growth comes back, hopefully in the not to distant future, you should start getting some positive operating leverage which should possibly get some margin improvement. So there is a possibility, I cannot go by the number that Morgan Stanley has and I haven't seen them but it is possible that there can be some improvement.
Anuj: How much incremental market share do you think you can garner over the next one year or so?
A: Market share is a very difficult thing to estimate in India because of the nature of the industry. And the size of industry itself being debated as it suggests 2.5 lakh crore or what it is but we are more interested in the studded share increasing in our own business. If that is happening then it is good. More importantly, there is growth in the studded jewellery segment itself and that has been quite encouraging in the last couple of quarters.
Sonia: So for the studded jewellery business, currently it contributes about 25 percent to the overall business, how much do you think it could contribute to going ahead? Will there be a higher contribution from the studded jewellery business in the overall jewellery segment?
A: We were 28 percent last year and you should also realise that we do have these promotions, which run in two quarters in a year, which is Q2 and Q4. So in those quarters, the ratio will be well ahead of 30 percent and then it drops in the other two quarters. This year, I think we should exceed 30 percent for a year as a whole because Q1 was itself it was 25 percent and this quarter is an activation quarter as well. So the ratio will be very good. So I would assume we should do over 30 percent this year.
Sonia: Would you not be impacted by the fall that we have seen in gold prices globally and the subdued demand?
A: Demand has not been so bad. The last quarter wasn't bad and this quarter we are also seeing something (demand). Of course there is this issue of foreclosing the Golden Harvest scheme; the 11+1 scheme that we were running and therefore you will find in a way a bumper Q2. We had to force the customers to close this so that we can come out with another scheme which is more compliant with the New Companies Act, which we expect to start next quarter. So to that extent, there will be an advancement of purchases. So the ratio for studded should be quite good.
Anuj: In terms of EPS growth, what kind of numbers would be reasonable from Titan?
A: I am not giving numbers guidance on EPS or for that matter even revenue. It is too early to say that and as I said for various reasons this quarter will be very good. We still have to wait and see how the second half is going to be.
Sonia: In the watches segment as well you are expecting good growth and what could the rate of growth be?
A: Watches has been quite satisfying as far as the growth in that segment because last quarter was quite good. We are seeing interest in the segment continuing this quarter as well. So that basically is signalling that maybe the worst is over in terms of customer spend on discretionary items. So I think that is a good sign. We are hopeful that this year will be definitely better than the last.
Titan Company stock price
On August 21, 2014, at 14:32 hrs Titan Company was quoting at Rs 366.05, up Rs 19.80, or 5.72 percent. The 52-week high of the share was Rs 369.00 and the 52-week low was Rs 203.00.
The company's trailing 12-month (TTM) EPS was at Rs 8.29 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 44.16. The latest book value of the company is Rs 28.43 per share. At current value, the price-to-book value of the company is 12.88.
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