Titan’s July, Aug jewellery sales are better than last year: CFO

There will be pressure on margins, because people are looking at buying gold more as a store of value and for asset allocation, says Subbu Subramaniam.

How has been the unlocking in last one or two months and now that stores are opening up, has demand really come back?
Our stores basically started opening in May, but most of them in June. As of now, about 85% or so of our stores are open. But when I say they are opened, it does not mean they are opened all days, because in many states there are alternate day working, etc. So wherever there are lockdowns in localities, store operations do get impacted. As we talk today, it is just about half the total number of stores that have been opened are open at this point. Obviously, this is impacting revenues and it was expected of course. The good news is, what we are seeing is better than what we anticipated in April, May. So June numbers for jewellery particularly were much better. In July, we are actually a per cent more than last year’s in terms of revenue. Having said that, there is also a base effect and some advancement of the activation that we did. On a like-to-like basis, we are looking at least 80 per cent of last year’s numbers in July, which is a very good sign that we are getting traction back in the jewellery segment. In August, we are so far actually tracking ahead of last year. So that is a very good sign.

The other two businesses -- which are watches and eyewear -- are getting impacted and they are impacted because of the nature of the categories. Watches are clearly very discretionary in nature. In jewellery, there is a whole issue about gold and store of value, its attraction as an asset class is helping it. Along with it, of course weddings, whatever are happening, are triggering some buying. But we do not have the same reason in watches as much. Eyewear is a more intimate interaction with the store and, therefore, I think people are postponing purchases at this point as much as they can.

But I believe these will come back to normal fairly soon. The way we see it, at least in quarter four, we should be looking at growth and normalcy for sure. We are hoping quarter three will be much better. Quarter two we will have ups and downs. July, August are not bad so far. September is an inauspicious period, which is extended. So we may see a slowdown of jewellery sales at that point. Otherwise, I think, it is not bad so far.

But usually higher gold prices also alter the customers buying behaviour adversely. How confident are you of maintaining the July trend in the jewellery segment?
I am sure we are seeing market share gains, because from what we understand I do not think other jewellers are have managed to recover to the extent that we have. So I think that is very clearly happening. As far as gold price is concerned, there are different aspects here. One is that as I said earlier the investment avenues for many people seem to be limited now. Stock markets are going up and down, but not everybody is comfortable there. Debt market yields are much lower, and a threat of inflation is there, and with the gold prices going the way they are, it looks like a decent asset class for many people. Therefore there are higher investments in plain gold jewellery for sure despite high prices. People possibly are expecting higher prices in future.

Our hypothesis is that spending as such has come down. People are looking at spending only on essentials today. A lot of the discretionary spends ,which otherwise were happening, was essentially on travel and going out and so on and so forth. That has come down substantially, and that may have resulted in people having more savings, which possibly is flowing back to gold. It is a combination of these. We cannot precisely say exactly how much each of them are contributing, but this is how we believe things are panning out.

Are you seeing competitive pricing pressure in the jewellery segment as the unorganised sector will be sitting on pretty large inventories?
There have been some cases in some cities, where there have been reduction in gold rates and making charges and so on and so forth. But we are not seeing it across the board. And as I had mentioned, it does not seem to be impacting us any way, because we are gaining market share everywhere. I do not believe there is a significant reduction in gold prices, because of the increase in gold price. The fact that others may not have been hedged. Also, the way people look at it is very different. One does not look at just the gain, because they are also looking at what they need to invest. If they discount gold rates now, they also need to invest at the higher rate and which means they lose later. I do not believe many jewellers would go on discounting indiscriminately. We are not seeing that across the board. You find some promotions here and there. That is because people want to liquidate stocks, which is understandable, but other than that, we are not seeing anything significant.

Given the mixed trend, high sales of gold coins, low studded ratio sales, could we expect margins to be under pressure over the next couple of quarters?
Yes, I think that I can accept. There will be pressure on margins here, because this is a time when people are looking at buying gold more as a store of value and for asset allocation. It is not so much about discretionary spend. So diamonds are clearly not in favour as such. Most jewellers or most customers -- even those who used to buy diamonds earlier -- are looking at buying gold at this point. To that extent, yes there will be a margin erosion. We have seen it play out in June, July and maybe it is continuing in August as well. So, this is something we think is going to happen. But what we are trying to also do is to try and increase gold sales and target that more.

With work from home now being the new norm, consumers may not be looking to purchase watches at the moment, are you looking to enter into the home segment in any way?
You are right about that people working out of home do not feel possibly the necessity to even dress up, forget wearing watches. But I believe this will change over time, and it depends on how long these things carry on. I also believe we will get back to normal in a reasonable period of time. In the interim, it is going to be a little challenging no doubt. But the good thing we did was invest in the digital platforms that we have now, a lot of that is working well. E-commerce is a big push also in last few years. We have seen sales of our watches and wearables division go up substantially on the e-commerce platform. Today it contributes more than 10% of our revenues. Therefore, the omni-channel play, the e-commerce play, all of these would to some extent mitigate this issue. But it is going to be challenging. We are going to see watches take far more time to get back to normal.

Every company has resorted to automation and cost cutting -- some by choice, some by compulsion, some purely by discovery. Where are you headed on this front?
On the ineffective hedge part, frankly the P&L impact of whether it is effective of ineffective should normally be neutral, okay. Therefore, all that matters is where it is being shown: if it is an ineffective hedge, if the same hedge had been effective, it gets netted off in the revenue, whereas if it was ineffective if it shown as a line item in the P&L account. That is why other expenses have gone up.

Typically nothing would have happened if rates have been flattish. Even it there were still an ineffective hedge, it would not have impacted the PBT as such. So that is how this works. We will call out that number also, so that people understand what component of other expenses included this. Having said that, we are working on this) base programme, which we started before Covid sometime in December. It was part of our planning exercise this year. Those savings are kicking in. We are getting a lot of that of course. Beyond the base programme, there have also been cuts in employee compensation. So those also are going to happen this year. This is a year where we will have significant savings on cost, and hopefully, a lot of these savings will also be sustainable and will carry on to the next financial year and beyond. To that extent, this is a great opportunity to take a relook at our cost entirely, and get a stronger base, so that our margins do start going up from next year when we expect normalcy to return.

You have also incorporated a wholly owned subsidiary called Titan Commodity Trading. What is the purpose of this company and why have you now brought this company into existence considering that you have always been dealing in commodities?
We are looking at becoming a member in one of the commodity exchanges. Sometimes we do have third party risks, when we go through brokers to hedge. We have to hedge a lot of our gold on the MCX. We have had some issues. We have had some issues with some of the brokers, which are facing liquidity issues. We are looking at the subsidiary to do it actually directly. If we can be a member of MCX, we do not have a third party risk at all in this case. That is a primary reason why we are doing this.

You have also said that launches will be postponed to Q2. Are we on track with those across segments?
I think you are talking of the jewellery collections. You must have seen already it is being advertised and so on. So yes, they will start happening. Watches we have just started connected watches. You must have seen that ad also very recently. So there are exciting products coming up, exciting collections coming up as we speak. Obviously in the first quarter, we could not have done anything with all stores being shut. Second quarter onwards, as semblance of normalcy returns, all these will come back. Hopefully there would be more to excite customers in the next few quarters.