Introduction of GST to hugely benefit tax paying companies like Titan, says MD Bhaskar Bhakt

ET Now: Market reaction is that numbers are better and the jewellery business is looking strong, so before we talk about what lies ahead, first let us talk about what has worked for you for the quarter gone by, and what were the key highlights.

Bhaskar Bhat: Well, the key highlights of the quarter really were pick up in sales post the festive season. Festive season sales were not as good as we would have liked it to be, but the wedding season was strong even through November and December. As you can see, jewellery numbers are good, but that also was because of the base effect of last year, because of the GHS.

We also did some advancement of consumer schemes, end of season sales and so on. So overall very good growth in jewellery, reasonably good growth in watches and not such a good festive season sale, although it was better than, let us say, the previous year’s Diwali sales.

We, of course, continue to believe in the Indian market and continue to invest in network expansion. So it is still early days for clearly saying green shoots are visible.

ET Now: Let us talk about what has worked for you. It is the jewellery business this time around; however, it is the PAN regulations that continue to hamper growth. You could have done way better than the 30% delivery that you have in the jewellery business. Do you sense that perhaps next quarter you will be able to beat it? Or like you are saying since it was wedding season, this was a bit of one off, and come next quarter, you would have tempered growth yet again?

Bhaskar Bhat: See, the PAN card limit dropping to Rs 2 lakhs was effective only from January 1, 2016. Therefore, up to December 31, 2015 it was only Rs 5 lakh, especially for jewellery. Now it is across all categories.

I think the reality of the PAN card, requirement of the PAN is with us. Therefore, as far as TitanBSE 4.10 % is concerned, I mean particularly the jewellery business, we have dealt with it well. Now consumers know that when you go to a Tanishq store, you need to carry a PAN card.

It is only that it will take time, we will have some effect because of the lowering of the limit. Having said that, the 30% growth that we have clocked is unlikely to continue at the same pace, because underlying growth is not at 30%, it is essentially because of the advancement of purchases by several customers in anticipation of the PAN card limit dropping.

ET Now: I want to try and understand the basic purpose behind diversification by Titan. You have diversified into eye wear, you have already diversified into the perfume business. Now we understand that you are coming and diversifying even in the saree segment. I am trying to understand the thought process behind this. I know some of the areas where you are diversifying, they attack the consumer market per se, but do you need so much of diversification?

Bhaskar Bhat: On the last one, I do not know where you heard it from. It is completely false. I will address the eye wear part and the perfume part. We have always maintained that there are a lot of unorganised sectors in India in the lifestyle space, and they are categories which have great potential. Eye wear was one of them.

Eye wear is one of them, and will continue to be one of them, because of many reasons. The penetration levels are low, the service levels could improve, transparency is low. All of that which existed, let us say in the jewellery industry, which we successfully leveraged.

Of course the size of the eye wear business is much smaller, but the volume and the potential to transform is very, very high. Fragrance is similar. There are not enough national brands. We have the sweet spot in terms of pricing with an exceptional product. Therefore, again, unorganised, poor price transparency, lot of smuggled stuff, and India is on that path of now acquiring these lifestyle categories and trying them on.

That is the principal.

Unorganised sector, categories where we could bring great value for Indian consumers… and we are fundamentally focusing on the middle and upper middle class, large masses who are aspiring for a better lifestyle. We are giving them products of quality and elegance and style.

In fact, our latest launch, the Juxt for example, the tech watch, the connected watch which is one more step in this direction, where we are applying our watch expertise together with HP, to partner in what is a new trend in watches. In India adopting of technology is very rapid.

ET Now: Since you have picked the point on watches, it was a very weak performance in the quarter gone by, margins have taken a knock of about 80 bps. What is it besides the new launch and the product that you are talking about and sporting? As well as I can see, what is it that you are planning to do differently from the quarters ahead that could aid margin performance?

Bhaskar Bhat: Watch business is undergoing transformation, very rightly so. There have been several strategic steps we have taken, we have vacated lower price points, for example in Titan. That does not get immediately filled up by high performance.

We are doing extremely well at higher price points, which means margins should improve, whereas the vacation of the volumes at lower price points, particularly in Titan under Rs 1,750, which is a strategic move, your overheads are– the leverage we have lost and therefore the margin has go affected.

This is a step we have taken quite courageously in the long term interest of brand Titan. That space, the lower end space is expected to be filled up by Sonata and to some extent by Fastrack.

So I think on the one hand the traditional watch business has still got potential because of design, innovation etc. But the launch of the JUXT, our smartwatch again is differentiated, it looks like a watch first and therefore design. There is a strong design element in it.

At the same time it has got features I would say which are very-very relevant to the Indian market, long battery life, for example, is a very important feature of this watch, which we have partnered with HP to launch.

Of course, it is not going to be a big part of the business, but certainly it is where many young customers whom, let us say, we were not able to attract barring through Fastrack, will come back to brand Titan.

ET Now: What will change for you in the course of next 12-14 months or 12-15 months, which will move the needle for Titan, last two years have been very poor as per your historical standards?

Bhaskar Bhat: I think the reasons are very clear, is it not? We believe in following the letter and the spirit of the law, whereas we know the rest of the jewellery industry, not all of it, a large part of it does not follow that.

We have talked about this to government and not that we lament any of this, it is directionally right. Whether you looked at the Golden Harvest scheme having had to be curbed, stopped, in fact so we lost a lot of business there. The PAN Card, and we insist on PAN Card irrespective of whether others do it or not, we do not break bills and so on.

The headwinds and of course the high import duty which led to others being able to undercut us on price because of illegal imports, so all this happened in the last 24 months. Now the correction effect of all this on the Indian consumer, that is habituating her, to bring up a PAN Card, etc., is going to take time.

If you take that as one regulatory, the introduction of GST for example, is going to hugely benefit companies like ours which have been paying taxes, and where other players do not.

I think the last two years performance, apart from the consumer sentiment having affected us, and maybe in some parts of our businesses our own inability to let us say, respond fast enough, with a smartwatch and so on, has got corrected. But what is going to change really is, as I told you, a transformation in the watch business, significant new segments that we are entering in the jewellery business, particularly weddings, Mia and the prospects in the eyewear business and fledgling businesses like fragrances which are only going to grow much bigger.