Jhunjhunwala grills Titan top brass

India’s own Warren Buffet, Rakesh Jhunjhunwala (in pic), is taking investor activism to the next level. The owner of RARE Enterprises, who holds close to 9 per cent stake in Titan Company along with his wife Rekha Jhunjhunwala, has expressed his concerns about flat margin as well as poor payout ratio.

The company announced a dividend of Rs 2.6 per share or 30 per cent payout, ex-DDT compared to Rs 2.2/share announced in FY16.

Rakesh Jhunjhunwala owns 6.96 per cent or 6,17,60,645 shares in Titan Company while Jhunjhunwala Rekha Rakesh owns 1.6 per cent or 1,42,65,575 shares in the company.

Jewellery and watches maker Titan Company on Friday reported its fourth quarter profit, which was below analysts’ estimates at Rs 200.7 crore, a growth of 7.4 per cent compared to Rs 186.9 crore posted in the same quarter last fiscal.

For the watch segment, Titan reported an EBIT margin of 41 per cent on a year-on-year basis, but it was down 77 per cent on a quarter-on-quarter basis, Ambit Capital said in a report.

For the jewellery segment, margins slipped by 12 per cent on a Y-o-Y basis and by about 4 per cent on Q-o-Q basis.

Operating profit during the quarter jumped 30.2 per cent to Rs 272 crore, but margin contracted 80 basis points to 7.9 per cent compared with the year-ago period. Earnings, barring revenue, missed analysts’ expectations. Operating profit was expected at Rs 319 crore and margin at 10 per cent for the quarter.

And at the conference call post Q4 results, Jhunjhunwala said he found the numbers from Titan’s watch division unpredictable.

In a specific question, he said he failed to understand why the watch division’s profit fluctuated so much.

S Ravi Kant, CEO, watches & accessories, suggested instead that he “would strongly recommend that we look at profit at the end of the year and not track it, specifically EBIT margin, on a quarter-on-quarter basis.

“It is like saying how come you have spent 20 per cent of your sales on advertising in a quarter. But it makes sense to look at the advertising-to-sales ratio only at the end of the year. The short answer, therefore, would be that advertising spent was very high in the last quarter on account of many new products that we launched. Something that was supposed to be launched in third quarter got pushed to the fourth quarter and that is how the margin varied,” Kant said.

Kant admitted that in the March quarter, EBIT margin slipped in low single digit, which was largely on account of high advertising spend due to new product launches.

In order to drive growth, the company increased its advertising spends by 43 per cent in Q4. At the end of the year, the EBIT margin of the watch division is a double-digit number compared to 8 per cent last year.

To this, Jhunjhunwala said he is not happy with the EBIT margin. Most of the big brands in India have an EBIT margin of 18-19 per cent.

Foreign companies have margins in the 18-19 per cent range even after paying royalties. Given the size of the Titan brand, Jhunjhunwala said, “I do not think the margins are very good.”

S Subramaniam of Titan said that margins are recovering after slipping below 10 per cent through a combination of premiumisation and cost compression.

Commenting on the margins on the watch, eyewear division, Ravi Kant said double-digit margins should come by this year as most of the things that needed to be done are done. “We closed a lot of loss-making stores and converted a lot of companies into a franchise. And, as we achieve scale, we hopeful to see good margins into the eyewear division,” he said.

Jhunjhunwala held an 8.57 per cent stake, or 76,026,220 shares, in the Tata group firm as of March 31, which was worth Rs 3,644 crore as of Friday’s close. He held 75,206,220 shares, or 8.47 per cent stake, in the company at the end of December 2016.