While Titan Industries has scaled down its FY13 sales estimate, it has maintained profit and store expansion targets. Chief Financial Officer S Subramaniam, in an interview with Priya Kansara Pandya, talks about the opportunities before the company, as well as the challenges it faces. Edited excerpts:
You have scaled down the FY13 sales target from 30 per cent to 15-20 per cent, but maintained the growth estimate of 30 per cent.
Most of the growth in the quarter ended June was due to the store expansion in the last one year. We will open many more stores in the second and third quarters. Most of our network expansion is franchise-led. So, major costs do not come into our books. At the same time, opening a new shop adds to sales. Of course, these don’t start with 100 per cent efficiency from the first month.
We would also look at our costs more sharply than before, and we have a few possible levers on the cost side. The biggest is direct import of gold, which would lead to lower purchasing costs and add to margins. But the benefits would kick in only after two to three months. We would also control other overheads like commissions and promotions. But we would spend more on advertising compared to last year. In short, we would definitely focus on the bottom line, irrespective of the top line growth, which means being more careful in spends.
Do you see foresee turbulent times, given gold prices seem to be stuck at Rs 29,000-30,000 per 10 grammes and a pick-up in the economy, if any, would not be drastic and immediate?
The subdued performance of the jewellery business in June was not because of high gold prices alone. There were few weddings during this period. Also, we had a significant higher base in the corresponding quarter last year, when volumes and revenues soared 40 per cent and 72 per cent, respectively. I hope people will get used to the new price range. Demand would pick up in the second half of the financial year (the festive season). Though consumers may buy less, they would maintain spends. Also, we have our own promotions and campaigns like ‘affordable diamonds (diamonds at lower price points), Mia for working women (at affordable rates) and FQ for teenagers (jewellery under test launch) to make jewellery more affordable and spur demand. But the concern today is the slowing economic growth and the failure of the monsoon. These would affect rural demand.
Would the financial performance be price- or volume-led?
So far, it has been entirely price-led. For jewellery, our margins (making charges) are based on gold prices. For watches, we had carried out significant price rises in the last one year, and there would be a few more, with the rupee falling sharply from 48/dollar in March to 55-56/dollar. So, overall growth in FY13 would be largely price-led.
Would same store sales growth (SSSG) be hit by the robust store expansion plans?
The effect of cannibalisation would be very marginal, as we are going to more regions. SSSG would be similar, and new stores should add to sales growth. At this point, it would be beneficial because we would be well positioned when things start picking up and growth gathers momentum.
Do you see any improvement in the inflation and rupee fronts, which you expect might affect your targeted growth?
We believe very strongly in the India growth story and the consumption theme. India’s 6-6.5 per cent growth in FY13 would still be more than growth in other countries. While we may be disappointed, we must realise what’s happening across the globe. Having said this, the rupee is likely to strengthen from the current levels, as commodity prices are expected to soften because of the slowdown. Most experts are talking of the rupee settling at 52-53 a dollar. The government seems to be clearly looking at improving the investment climate, and this would attract inflows from foreign institutional investors. This would also bring down inflation and cost pressures and help the overall economy.
Don’t you think the target of adding 2,00,000-2,50,000 sq ft in jewellery stores and 200 stores for watches (100 each for Fastrack and Titan One) is too aggressive, given the slowdown?
I don’t think the slowdown has anything to do with our execution. There could be delays (due to tying up real estate), but our execution is in that direction, and we are fairly confident we would be able to do so. Our retail space already accounts for over a million sq ft. We would expand by another 4,00,000-5,00,000 sq ft in the next two-three years, with 2,00,000-3,00,000 sq ft for jewellery stores and 1,00,000-2,00,000 sq ft for watches.
A Nielson study on West Asia had identified about 400 cities expected to grow at a significantly higher rate than the rest of the country. Currently, we are present in about 150 towns. So, we have a long way to go. Today, we are more into Tier-I and Tier-II cities. But increasingly, our focus is on Tier-II and Tier-III cities. Our brands Titan One (watches) and Gold Plus (jewellery) are focused on smaller cities.