Titan CFO Subbu Subramaniam says customers are keen to buy gold jewellery despite the high prices that are prevailing. Hopes for recovery by Q4 of FY21 but expects numbers for the full year to be hit badly by the pandemic.
Gold’s glitter seems to be taking the sheen off the diamond. Despite high gold prices, Titan has witnessed robust demand for gold jewellery, leaving behind woman’s best friend.
Diamonds are clearly not in favour as such, Subramaniam, Chief Financial Officer, Titan Company Ltd, told Moneycontrol in a telephonic interaction. Most customers who used to buy diamonds earlier are looking at buying gold at this point, he added.
“People are looking at buying gold more as a store of value, asset allocation and also as a safe haven. If you look at the stock market, people are wary of the market direction ahead; debt markets are yielding very low returns. Therefore, in the context of that, gold seem to be a safe-haven investment for most people,” Subramaniam said.
Jewellery rules
On a like-to-like basis, Titan is looking at reporting at least 80 percent of last year’s July revenue and is getting traction back in the jewellery segment. In August, so far, the company is ahead of last year, Subramaniam said, without revealing any numbers.
In Q2 (July-September) of FY20, Titan had reported revenue of Rs 3,528 crore against Rs 3,582 crore. Its jewellery business had done better than most players in the industry then.
Titan sells jewellery under the brand name Tanishq. The jewellery business is Titan's mainstay and accounted for 83 percent of its revenue in financial year 2020.
Apart from gold jewellery, Titan has also seen demand for gold coins in the past few months.
Gold seen as a safe haven
Since January 2020, gold prices have surged nearly 40 percent, tracking a rally in global rates and depreciation in the rupee against the US dollar.
Also, the rise in safe-haven demand and expectations that central banks and governments will maintain support for economies hit by the coronavirus have pushed gold prices to record highs.
On August 7, gold hit a record high of Rs 56,191 per 10 grams in the Mumbai bullion market. On August 19, the gold price closed at Rs 55,360 per 10 grams.
Subramaniam envisages gold prices will rise in the coming months and expects demand for gold jewellery to continue. The company will also open 20-30 new jewellery stores in the current financial year.
Down time
Titan suffered a loss in the quarter ended June as stores remained shut during the Covid-19 lockdown and consumers spent less on discretionary items.
The company said 83 percent of its stores had opened by the end of June. But even then, many were not operating on all days.
“With the negative consumer sentiment prevailing in the quarter, discretionary spends were very low and specifically impacted our watches business,” Subramaniam said.
The watches segment, which usually accounts for 12-15 percent of revenue for the company, was the worst hit as demand for the accessory drastically fell after the Covid outbreak. The segment recorded an 89 percent decline in revenue in the June quarter. The watches division comprises brands such as Fastrack, Sonata, Raga, Octane and Xylys.
Subramaniam indicated that demand for watches has not picked up in Q2 as well. Again, he did not share any numbers.
The disappointing earnings did not deter the company from launching new products. Titan announced the launch of its full-touch smartwatch ‘Connected X’ on Amazon India during Prime Day on August 6. The product has garnered a good response so far, Subramaniam said.
Outlook
Subramaniam expressed concern that overall numbers by the end of FY21 will be hit badly due to the pandemic.
However, he was quick to add that at least by the fourth quarter (January-March) of FY21 things may start getting back to normal.
“We may see a decline in our revenues for FY21 but hopefully by the fourth quarter, we may get into a sense of normalcy. So, FY22 should be a normal year with the hope that the vaccine will possibly come out by the end of this calendar year, which looks very, very probable now,” Subramaniam said.
The company also slashed its advertising spend in Q1 of FY21 by 86 percent. Even in Q2, ad expenditure is likely to remain muted. Subramaniam said, adding: “If the revenue starts ramping up from Q3 and Q4, we will increase ad spend."
For the remaining quarters of FY21, Titan is pinning its hopes on a revival in demand during the festival season and weddings as people are likely to get used to the new normal.
“The festive season should be decent as most people have been cooped up in their homes since March. They would want to go out, shop, explore and enjoy during Diwali and Christmas. Additionally, weddings, which were to take place in Q1 and Q2, are being pushed to Q3 and Q4 (of FY21). So, lots of occasions coming up for us to take advantage,” he said.
Titan Company Ltd, a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation (TIDCO), commenced operations in 1984 under the name Titan Watches Ltd. Titan is the fifth-largest integrated own-brand watch manufacturer in the world.