A titan of industry continues to look for new pastures

Last Updated: Tue, Sep 18, 2012 19:42 hrs

Bhaskar Bhat, 58, has an effective habit. When he gets time once a month or so, he sits with his predecessor, Xerxes Desai, the founder-Managing Director (MD) of Titan Industries, to figure out how best to grow this well-known brand into other sectors.

These informal chat sessions that have been going on for decades now seem to have worked a special magic. Under the stewardship of Desai and Bhat, this staid watch company has not only thrived, expanding into new segments, but has also built one of India’s best known jewellery brands—Tanishq. Bhat has also made a foray into the fast-growing, youth-focused accessories segment with Fastrack, which has been a runaway success so far. Now, it is in the process of venturing into the eye wear business.

Things weren’t always so peachy for Bhat, , a B.Tech in mechanical engineering from IIT, Madras, and a post graduate diploma holder in Management from IIM – Ahmedabad, who took over as MD in 2002, when the company was debt-ridden thanks to an ill-advised venture into Europe. Yet, Bhat has engineered a remarkable turnaround at Titan, enough to give him a third five-year term at the helm what is considered as one of the most respected retailers in India.

Titan Industries
  • World’s 5th largest Watch Manufacturer
  • Strength in Retail: Over 800 stores with over 1 million sft
  • Distribution: More than 11,000 Multi-brand outlets

Watches (Rs 1,600 crore)
  Total estimated market
  Volume: 53 mn
  Value: close to $ 1 bn
  Organised market approximately 23 mn

  • Only 27% of Indians own a watch
  • Market size expected to double in next 5 years
  • Competitor brands : 65
  • Titan’s market share of organised market: 65%

Tanishq (Rs 7,000 crore)

  • India has been the largest consumer of gold in the world, accounting for 25% of world consumption
  • FY11-12 Demand for gold
    Volume: 854 tonnes (Jewellery: 534 tonnes)
    Value: US$45 billion (Jewellery: US$28 bn)
  • Independent Jewellers : 300,000
  • Organised players (regional) with multiple outlets Rs 15
  • Titan is one of the few national players in the market
  • Titan’s share < 5% of total market
  • Headroom for growth is significant

Titan Industries is a marketing force. Starting at the mid-segment of the watches business, the company has strategically crafted its way upwards and downwards, spanning almost the entire value chain and offering multiple choices to multiple customer bases. At any one Titan store, you have a choice of 1,200 designs across segments which no other watch company can offer. “The retailer wants us to pull in the customer and once the customer comes in he is spoilt for choices,” says Bhat.

This has also meant selling premium brands through its ‘Helios’ arm which carries 25 premium watch brands including Hugo Boss, Tommy Hilfiger and FCUK among others. “We are the market leaders in watches and we have to grow the segment. Since we are a trusted retailer of watches, it makes sense for us to tap into the luxury segment as well,” adds Bhat.

New Opportunities
Even as the company fine tunes its strategies to sell a sturdy watch costing as little as Rs 225 to a high-end one that can set you back as much as much as Rs 50,000, Titan is looking at other areas where it can leverage its prowess of marketing and brand building. “Leather accessories under the Titan brand, is the next step which is in the works. Fragrances may be as well. The focus of how we pick and choose the segment is that there should be huge volumes where we can bring in an element of trust and bring a change in the sector which is highly unorganised. The watches, the jewellery, the youth range of bags, college accessories and eyewear were all based on that fundamental objective,” says Bhat.

Another potential El Dorado for the company: “As we see the evolution, we are closely studying how we can bring a change in the kids segment,” says the Titan MD. According to him, parents are spending enormous amounts on their kids and want their children to grow up in a specific way. “They are exposing their children to all kinds of things. And it is not just about toys. It is the whole aspect on how we can value add as a parent in the upbringing of one’s children,” is he says, but declines the opportunity to be more specific.

Well-oiled, financial machine
Behind all the razzmatazz of Katrina Kaifs, Aamir Khans and Mahendra Singh Dhonis endorsing the Raga, Edge and Sonata range of watches, lies a well-oiled, financial powerhouse which has got almost no debt and known for sharing proceeds with shareholders in addition to offering impressive returns on their investments. One example of this lies in the company’s gold jewellery business. While many jewelers bet long, buying gold at a specific price and hoping to unload it as prices shoot up, Tanishq has another strategy.

“We do not bet on gold prices. The strategy is that we adopt a system of getting gold on lease from wholesaler for a period of six months on credit. As and when we sell the gold, the price of gold that we sell is marked to that rate and will be paid to the wholesaler in a six-month cycle. We generate good amount of cash — we have Rs 900 crore of cash with us in this cycle,” Bhat explained. Titan Industries can easily and rightfully deploy this cash, but will not, as a responsible publicly held company. “We must be constantly aware of what is happening in the gold market which is extremely volatile. The Reserve Bank of India has been talking about curbing gold imports, which according to them is having a deep impact on the outflow. If some curbs come into effect, then we may have to change the whole business model,” Bhat explained on the perils of being in this high revenue segment.

Titan has also caught the bug that has recently infected other corporates—which is to ‘premiumise’ offerings. Last year, the company acquired a 300-year old Swiss heritage brand—Favre Leuba—and its positioning is being sharpened for a launch in India. “Over a period of time, we believe that there will be a good potential play for high-end Swiss watches in India. It is an allure. Brand building in that segment is a long haul, which we are on course with our brand Xylys. Favre Leuba is another attempt to occupy that luxury space, while at the same time ensuring we do not at all lose focus on the mass volume segment at which we excel,” Bhat explained how that DNA will not be tampered with.

The premiumisation push is also taking place in the gold jewellery business. Highly-specialised designer jewellery, along with diamond studded ones are being pushed as they gains better returns. On an average, diamond jewellery accounts for around 26 per cent of the Rs 7,000 crore jewellery business and the roadmap is to take this share to 40 per cent. The margins in the jewellery business are less than 10 per cent while the watches segment does much better, at around 15-16 per cent margins.

Weak spots
For all this success, Titan has its weaknesses. The company, hammered by rising gold prices, posted lower than expected numbers for 1QFY13 with weak performance for both jewellery and watches. Jewellery volumes declined 21 per cent due to high gold prices and slowdown in consumer demand. Sales grew 8 per cent and EBIT grew 9 per cent; margins remained flat YoY at 10.2 per cent. Sreekanth P.V.S., an analyst with Motilal Oswal Securities says, “We have been cautious on the volume growth scenario in the jewellery business. However, we are positive on Titan's store expansion strategy to drive volumes. This will work in favour of the company due to the franchisee model."

The company, realising its vulnerability to the commodity business, is working at a rapid pace increase by increasing innovation and sharply focused marketing strategies for each of its offerings. “We are in the lifestyle segment. We are pretty much aware that people will keep moving and there is a high degree of demand in building loyalty with a good aspirational value,” says Bhat. “That is one big challenge which keeps us on our toes,” he adds.

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