Ashok Sonthalia, CFO, Titan Company, says “the mid premium, premium, high value segments are showing very good traction, good demand and growth rates are very high in those segments. The growth in consumer numbers is also high. Entry level demand is a little bit dull still. I would say the whole discretionary aspect at the entry price point, the target segment of consumer is yet to see the whole thing panning out, but early signs are very good and we are very positive about Q3 and Q4 shaping up.”
Well, the festive season this time is falling in Q3 versus Q2 that we had seen last year. But so far, given that we are halfway through the festive season, what is the demand looking like? Are you seeing that festive cheer and festive mood in the consumer sentiment as well?
Yes, from last year, the start period had shifted to Q3 and so the first 15 days were slightly slower and even gold prices have become volatile because of the geopolitical situation outside India. But things have settled down since then and we see a good demand coming up towards the second half of October and beginning of November. The mid premium, premium, high value segments are showing very good traction, good demand and growth rates are very high in those segments. The growth in consumer numbers is also high. Entry level demand is a little bit dull still. I would say the whole discretionary aspect at the entry price point, the target segment of consumer is yet to see the whole thing panning out, but early signs are very good and we are very positive about Q3 and Q4 shaping up well.
The jewellery EBIT margin has been very strong this time as opposed to last quarter. Are these 14% levels sustainable given the competitive intensity in this segment?
Yes, on a full year basis, it is 12% to 13%. Our focus is more on growth, market share gain, number of customers coming to our fold and delivering a consistent margin profile, which is 12% to 13% for a full year basis seems to be more right. Q2 is more diamond studded activation quarter. So the margin profile of Q2 is slightly elevated every year. So, 12% to 13% is a more reasonable band to aim for.
Premiumisation has been the big trend over the past year. Have you seen a trend for companies with high ticket size jewelleries seeing more demand?
We generally look at sub-Rs 50,000, Rs 50,000-1,00,000, Rs 1,00,000-2,00,000, Rs 2,00,000-5,00,000 and Rs 5,00,000 and above. There is no upper limit. There are transactions which happen in a couple of crores also and Rs 5,00,000 and above we generally treat as a more premium category. That is how we monitor our data. Certainly, Rs 1,00,000-2,00,000, Rs 2,00,000-5,00,000 and Rs 5,00,000 and above are doing extremely well at this point of time. I was referring to sub-Rs 50,000 where everyday diamond jewellery or gold jewellery are sitting. There the growth is slightly slower, but I would still say that Mia and CaratLane are doing well but ambition is to go maybe even higher. CaratLane has delivered 45-46%. Mia number within Tanishq is not separately available to you, but it is a similar kind of ballpark and 45%, 46% by no means is not a good growth rate. But yes ambitions are for even more and that is not coming so easily.
You talked about CaratLane showing a good growth of 45-46% but what about the road going forward? What is the strategy you have outlined for yourself when it comes to CaratLane?
When we kind of increased our stake and announced that in August, then we talked about how we see it as a very long, unfolding opportunity. The first 10 years of CaratLane since they started has been one phase and the next 10 years is going to be another phase. In the first 10 years from starting as a completely digital company, they came to Titan fold in 2016 and in the next six-seven years, they have emerged as an omni company which has a digital and then good network of physical stores and are able to connect it very well.
Still the default for their customer is first to go digital, do the search and finally maybe come to the nearby store. Now, we believe that in the next 10 years, that strategy is going to continue. Their physical network expansion will definitely happen in the next three-four years more aggressively and then stabilise and, of course, the whole digital method of reaching out to customers, along with that the brand building and with the help of Titan, our backend support in sourcing and some of the other processes will be slightly higher than what it used to be. We believe that with closer support from Titan in the next 10 years, the future for CaratLane seems to be very promising to us.
Your company’s current market share is around 7% in the jewellery segment. What do you think is the market share that you intend to clock by FY25 and what is the strategy then for the near term store expansion?
It is very difficult to give a number by FY25, but by FY27 when we had some time back talked about our ambition, we believe that we can reach towards 10% or be around that with all the four brands which we have in our kitty.
As far as the store expansion is concerned, if you look at this year’s trend, we have 40 Tanishq store, some 50 Mia and 50 CaratLane. Zoya stores which used to be three for many years is now eight and by the end of next financial year, should be around 15-16. So, all channels, all formats, all brands are looking at rapid expansion.
International is actually doing pretty well for us. We had 10 stores and by Q2, we are already 13 stores. Two more stores we opened in Qatar and one in Singapore. In the US, three more stores are coming up this financial year. So, all in all, not only network expansion, everything else which we do whether it is Gold Exchange Programme, our Gold Harvest Scheme, the whole focus on innovative design, adornment, and the customer experience part of it.
All things come together with regionalisation strategy and wedding strategy. But all put together, we see a good progress and future not only in India, in the international market as well.
Talk to me about studded jewellery. . The contribution of that segment is right now at 33%. Is this likely to be the range in Q3 and Q4 as well?
No. Q2 and Q4 are more where we promote diamonds in a big way and there is a focus. Q1 and Q3 are more gold because they are more rooted into the culturally auspicious events like Akshaya Tritiya, Dhanteras, Diwali. While people buy diamonds also, they prefer more gold and gold jewelleries. We believe overall, like in Q2 it is 33%, Q3 would be 30-31%. So overall, annually, we are not seeing too much change. We are in 30-31% range for diamonds.
With the increase in the demand for synthetic or lab-grown diamonds, are you seeing any sluggishness in the sale of earth diamonds in India or internationally?
In India, we do not see anything so far. No customer is asking, at least to us, about lab-grown diamonds. In the US market, the bridal jewellery, which is generally the engagement ring, contributes to 40% of the diamond jewellery market in the US. Out of that 40%, we do hear that 50% of the bridal segment has been getting replaced by lab-grown diamonds because these are cheaper and one can get a bigger stone on the same price of natural diamonds, which you are paying and maybe slightly lesser than that. So we are seeing that trend.
But in the natural diamond space, the price corrections have not only been due to the lab-grown diamonds (LGD). Many things have caused that, the inventory build up which has happened in the past. Lab-grown diamond is one of the contributors in that. As you are aware, we have a minority stake in a US-based lab-grown diamond jewellery company. The whole idea, when we invested two years back, was that only, that we want to keep a very, very close and keen eye on the development of lab-grown diamonds in the US market and appropriately decide on our response. We do not see anything to be done in India immediately, but we will be watchful. We will be ready to respond to evolving situations.
But there has been a significant fall in natural diamond prices. Will it impact your company in any way in terms of, let us say, the inventory losses or the pricing or something?
The diamond price corrections have happened generally, on the one carat and above category, larger diamonds. The correction has been there. Smaller diamonds are not that much impacted. And the predominant business of CaratLane, Mia, and Tanishq is on the smaller diamond side. We do have a solitaire business where there is a certain amount of inventory where the corrections have happened. In response to that, we have also taken some correction in our prices and that will flow through for the next two quarters.But it is not material enough for us to be worried about and to be calling out that our margins are shifting and our guidance is changing. No, it is not like that. Some impact is there, which will flow through in Q3 and Q4/ After that, the fresh inventory will come in the cycle but it is not very material for us.
Any specific trends that you are seeing in watches, wearables, eyewear business?
Premiumization is a very well-established trend across lifestyle categories. We see in watches, analogue watches, where the Helios and Titan brands are doing very well. Helios is a channel where we sell international brands and that is doing extremely well. So demand for premium watches in the analogue segment is very, very robust.
Titan is also taking certain action. Wearables is an exploding segment in India. India has become the largest smartwatch country globally in terms of number of watches. And we have been playing our game for the last 18 months very well. That business has now become 17% of the watches and wearable segment, from 10% one year back. That we believe, will continue to grow at least for two, three years.
The other businesses eye care is doing nice, profitable. Opportunity is large but we would like it to grow faster than what it is growing right now. But they are coming out with a lot of innovative products, looking at their portfolio, et cetera, et cetera. While eye care remains a core anchor for them that we want to be expert in eye care but at the same time, fashion, youth, sunglasses, et cetera, et cetera, they are really looking at their portfolio and doing some stuff around that.
