Titan Company Limited (500114) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Titan Company Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. C. K. Venkataraman, Managing Director, Titan Company Limited. Thank you, and over to you, sir.

Good evening, everyone. It is wonderful and also a little strange to be talking to all of you in this manner. Before I start highlighting the performance for the quarter, I would like to pay tribute once again to all those thousands of women and men in various stores of Titan Company very, very diligently and patiently wearing their shield for much of FY '21 and resisting the disease and presenting a very safe environment for the customers of Titan Company. And I would also like to thank the customers of Titan Company and of course, all the franchisee, distributors and the warehouse partners. All our partners in the back and all our other partners who helped us cope with this extraordinary situation, and of course, all the employees of Titan Company. I would also like to thank all of you on the call, to investors and analysts, who have such well wishes of the company and keep challenging us on the most important things that we should be delivering. The quarter itself was a fantastic quarter in terms of sales growth. We outdid our own plans and expectations, which we have shared with you when the year began way back in the month of May. The sales growth in Q4 was exceptionally high, even after discounting for the fact that one fortnight of the base quarter was 0 sale and we had only 5 fortnights in this quarter. But even after accounting for that, if you just look at the Slide #35, from up 63% for Tanishq, to up 10% for Helios, to up 28% for Eye Plus, to up 8% for the World of Titan, we were crossing the targets that we had set for ourselves for quarter 4 and we're very, very happy about it. We believe that we have improved our competitive position in the market serially quarter after quarter and this quarter represents that. The year FY '22 also began well in a way continuing the momentum, but of course, COVID came once again to complicate matters and therefore, it would be a little academic for us to speak about it at all on this call. And I would like to defer that conversation to a more appropriate time in the future. All I would say and assure you at this moment is that during FY '21, we also realized what kind of power we have, on the one hand, as a digital organization with substantial digital knowledge and total physical connect on the ground with our customers and how we used it to recover. We also know how many different innovations that we put together in terms of customer acquisition, in terms of cost management, in terms of cash management. And so that internal arsenal was available for all of us to deploy at a more deliberate pace, in a more systematic manner to make sure that whatever targets we have taken we will achieve them in FY '22. Now coming back to the profit performance stand-alone of FY '21. The sales growth was very good at 60%, but for various reasons, the gross margin growth was not commensurate. And it's a combination of 3 or 4 big ticket things. One is, of course, a much higher share of the jewelry business in the year and in the quarter and the jewelry business is the lowest gross margin business of the company because of the nature of the business. And that increasing share, obviously, dipped the overall gross margin profile of the company for the period. And therefore, the gross margin growth was depressed on account of the business mix. The second is that we had 2 other onetime, one of which is accounting onetime. We had a substantial gain in Q4 of FY '20 on account of CECL and all that. We had a loss in FY '21. The combined effect of COVID in the period. The third, of course, was customs duty, which we had spoken about, which got reduced. And we ended up incurring a loss in Q4 FY '21. The last part is individual gross margins in the businesses and even the category mixes. For example, we sold a lot of coins in Q4 of FY '21, including a very large order to the Tamil Nadu government. But while the studded growth was very, very satisfactory, the gold jewelry growth and the overall coin growth sort of overcompensated for that. Therefore, the product mix within jewelry, the product mix within watches between watches and wearables also complicated the matter. And on top of all of this was a dilution in the category gross margin presently in each one of those, which we were aware of for many months, but for reasons of continuing to keep the momentum on the sales growth and increasing our market share for FY '21 and also play our proper role and responsibility to our other stakeholders in the system. So that the vendors get good volumes, the franchisees get good sales value growth, the salespeople achieve their targets and earn their incentives, we didn't correct any of those, which we knew certainly H2 FY '21 very clearly what was going different than plan. But nevertheless, the quarter ended on an excellent note in terms of sales growth and even profit growth. While the profit growth was not in line with the sales growth and the EBIT expansion that may have been expected did not happen, but the EBIT growth itself was a very handsome growth at 35% and the PAT growth at 48%. So we're very, very satisfied in the manner in which we ended the year and we began the year. And the current complication, honestly, notwithstanding because we realized way back, 1 year back that this is a crisis of such huge proportions and so much out of anybody's control, that there is simply no point in fretting about it and wringing your hands. It pays much more to stay calm, confident, confident in the capabilities of the company, the assets on the ground and of course, the commitment and the sheer willpower that the organization has to come out of any challenge that comes its way. So we certainly used all that to overcome the current challenge as well and emerge on top in FY '22. And what is exceptionally gratifying is that the management of cash and the balance sheet became a well institutionalized process in the company, not restricted only to the top team. In fact, I would say, CEO minus 2 level, it has deeply penetrated. CEO minus 2 level people talk in terms of cash, in terms of balance sheet. And therefore, that is behind the exceptional cash balance that we're exiting the year with. And we're very sure that with the innovative model that we, in a way, deployed in FY '21, which is selling of bullion and then increasing the share of gold on lease to free up cash is something that we have got a very good grip on today, and we will execute it as and when required, to the extent required. So I would stop here and thank you once again for all your advice, for all your challenging over the times and all your support. And over to you and your questions.

[Operator Instructions] The first question is from the line of Manoj Menon from ICICI Securities.

It was a good performance and more importantly, Venkat, I must firstly compliment you for it was an excellent overview which you actually gave for we were listening to a lot of conference calls. So truly, it was a very, very good one actually. I had a couple of questions actually. One, in the first week of April, you put out your quarterly update, there was a fair amount of mention about, let's say, with an account in Tamil Nadu retail market, the different segment, et cetera. To the extent it is feasible for you to comment in a public conference call, subject to obviously your internal confidentiality which you need to maintain, just very curious to understand what was this thing which you did, let's say, of things that resulted in this trajectory change? I'm interested in the trajectory of this, not 1 quarter here and there. The reason I'm asking is because vending market as an opportunity has been here for Titan and most of it for a very long period of time. And for some reason, a few of them, which probably as an analyst I may have a view, it has not been necessarily fully achieved in the past. So just really curious to understand what you're building in the vending segment, et cetera, which is likely leading to a different trajectory currently. So that's question number one. The second one on, when I look at the historical or the empirical evidences, that tells me that when gold price inflates significantly over a period of time and then there is a correction, consumers tend to even postpone some of their consumption. So that's leading to a volume surge. So just wanted to pick your brain on, kind of Ajoy's brain on kind of what, I just wondered what the consumers are telling you based on the gold price behavior in the last 2 or 3 months.

So I'll take the call. This is Ajoy. Nice to talk to you, although it's peculiar circumstances. So Manoj, 2 questions, the first one about the Tamil Nadu market. I think the idea of gaining market share in TN is not a recent initiative. It happened over the last couple of years, strategic initiative. We took it as a test. So if you do a 360-degree approach to the market, can we kind of, A, connect to the customer more deeply. We have a local brand ambassador. Ananya Panday has been there. We had customized campaigns for that market which seeks to connect with the cultural nuances of the Tamil Nadu market and the customer. Two, we also had a fair number of network expansion strategy in terms of some of our older GoldPlus stores was converted into Tanishq stores. And plus, we've been adding a lot of stores in TN. So we have a fairly formidable network presence across many, many towns and town clusters of TN. The third piece is we also recognize that the TN customer is extremely price sensitive when it comes to gold rate and policies on exchange, et cetera, because of the nature of the local competition. So we realigned our policies for the TN market also accordingly. And the fourth piece is not so much on wedding, yes, we are doing some work. But in the end, I think that frontier and let's say, that opportunity still exists on the wedding segment. But I would say a lot of regionalization in terms of products which are daily wear and regular wear products, which we focus a lot on. We are also doing a lot of work on wedding, but that is yet to kick in. So a 360 approach on a sustained basis over the last 2 years is what -- and of course, a lot of work on the retail and customer experience side as well. I mean, many initiatives taken, we strengthened our team there, et cetera. So a lot of work has gone in, and that is beginning to yield fantastic results. The second question you asked about gold price going up and then correction leading to customers, let's say, coming into the market. Yes, we have seen that. In the last, in the quarter 4, we saw after many quarters, grammage growth besides buyer growth across all price segments, even the sub-INR 50,000 price segment which was sluggish even as late as quarter 3. So across all segments, we saw customers and we saw grammage growth as well. We also saw some amount of advancing of people buying for weddings, et cetera, in anticipation for quarter 1 as well. And that continued all the way up to April, as late as 20th of April. So yes, we have seen that, and that's added to a good sales.

Sir, that was extremely comprehensive. Just one follow-up if I may, and that's the only question I have is that, the Tamil Nadu experience and learnings, that you had a strategy, then you had a tactic and ended up implementing it. And then you had results also. Do you think there are a lot of learnings from a playbook point of view to be applied in some of the other large gold high selling markets in India, I mean states.

Yes, true. We have been applying some parts of the playbook in other markets like West Bengal, Bihar, in parts of Maharashtra, but not as comprehensively as we've done it in TN. And we have a plan to ensure we do that a lot more. In fact, we are seeing taking on different approaches in different markets and doing it in a 360-degree manner is what is actually gaining us good results. So having all the engines firing simultaneously. Yes, we see that as an opportunity and we hope to take it forward.

The next question is from the line of Abneesh Roy from Edelweiss.

Yes. Congrats on good numbers. My question is, when I see ad spend, it has increased only 4%, while revenue growth has been extremely strong. So has the competitive intensity gone down in January, especially from the larger players? And on the smaller regional players because of the way pandemic is extremely challenging situation, are you getting some ground that some of the players are exiting? So if you could comment on competitive intensity, both from larger players and the smaller even unorganized players.

Yes, Abneesh. I'll take that call, Ajoy here. So the competitive intensity actually from the larger national players has only gone up significantly. And I'm sure after the IPO of Kalyan, one more player would be rich with more fund, flushed with funds. So competitive intensity has gone up significantly on all fronts. In fact, we had to do some amount of aggressive pursuit of market share in Q4, which is also in a way, we've given away some margin to gain some share. From local jewelers, yes, they have been impacted significantly. I don't recall of any significant player having vacated or exited the market. But certainly, what we are seeing is the tailwind of people moving away from smaller local jewelers to the larger national ones continues as a consequence of this situation, like in any other disruptive situation in the past. Having said that, there are several regional players and stand-alone local players who are very strong and who continue to do well. So it is a mixed bag. I can't paint it in one go. But yes, if I were to classify the larger national players and organized players and the stronger regional players have gained. Perhaps some of the unorganized and smaller players might have lost. But let me also share this that in quarter 4, the market itself had also been good. It's not that we're the only ones who have clocked in growth. Many other players have also clocked in growth. We may have clocked in higher growth because of the multiple strategies at play, but I think the market itself was good. On marketing spend, we didn't hold back any marketing spend in quarter 4. We have optimized. We have done a lot of work between digital and physical ATL marketing and BTL activities. And therefore, we didn't compromise, but the marketing spend across larger players have actually gone up significantly and their share of voice has gone up significantly.

Sure. My second and last question is, in Q4 and even in Q3, you have done exceedingly well in January. So there was some level of pent-up demand and marriage season was very strong. So if you could update on marriage demand in the FY '22 how things are. More importantly, in the current scenario, which states still your stores are open, some business update, if you can give on the current scenario? And are you sharing any guidance for either this year or the long term?

So on the marriage thing, I think the wedding, you're right, there was pent-up demand for wedding. A lot of weddings took place and a lot of purchasing for weddings took place in quarter 3 and quarter 4. And in fact, was continuing to take place in the month of April as well, even as late as 20th of April. So we have been seeing a good growth in that segment. Pre this wave 2 hitting us, we were extremely bullish on the strong wedding season for quarter 1, both vending as well as fresh, many, many good days. And in fact, we also launched, in mid-March, I think we started the reward campaign. And we also had a major PR activity around that in the first week of April. So all guns blazing with the reward campaign and it's almost nearing its logical end right now, and maybe we will pick that trade-up later. So we are bullish on wedding. Current month, it's too early to talk. We were growing very well, as I was saying, up to the middle of the first fortnight and even up to the third week of April. Obviously, with the closures and lockdowns, et cetera, all over the place, that is fast coming down. So we may still end April at a marginal growth over April 2019, but nowhere near the kind of growth that we were aiming for or we were clocking in the first quarter. We don't have a guidance for the year or the long run right now.

The next question is from the line of Prasad Deshmukh from Bank of America.

Congrats on good set of numbers. So a couple of questions, one, in your initial assessment, how many stores are now impacted as a result of lockdown? And also in terms of production, is it still going your production on jewelry? Is it still going on or it's like complete halt right now?

I think the question is directed towards jewelry as I understood. I'll take the call again, Ajoy here. I think as of yesterday, we had about 50% of our stores were shut and 50% were open. It's a dynamic situation. We have to go as per what's happening. And in some places, in many markets, we've also taken proactive calls. If we see tremendous risks on the ground in terms of constraints, we are taking the call to shut those stores in those markets, and this is happening dynamically on a day-to-day basis. And we will continue to do so until things become safer. The second piece was on the production. Production is still on. This time around manufacturing constraints have not been imposed in any of the states. Yes, the rate of production has slowed down because we had to ensure safe production across our units as well as vendor units. And in fact, we've engaged deeply with all the vendor community and their carvers and bench carvers, et cetera, to ensure they're following this and they understand the importance of prevention. So certainly, the rate of production has slowed down, but nothing is shut as of now. But of course, if there is a situation in any particular unit, we may shut it down for the interim as and when things develop.

Sure. And then last question then. I know you just said we will not be able to give any guidance for FY '22. So safe to assume you would probably come out with some number to work with once the situation normalizes or is it like a completely dynamic situation right now, it's not on the agenda at this point in time?

Actually, Prasad, let me comment here. We had originally scheduled an investor conference on, if I remember right, on the 7th or 8th of May. And we have to reschedule it because of the dynamic situation. And now I don't know when exactly we'll be able to do it. I mean, this is what we would have covered in that particular conference. And we will anyway still plan to do it. I think sometime in June, we plan to do it, if I'm right. And by then, hopefully, the air will be clear, and we'd be able to take a view on FY '22, whatever the situation is. And at that time, we will share this.

The next question is from the line of Rakesh Jhunjhunwala from Rare Enterprises.

Congrats on a good result. I would like to know why you have cut the dividend. You have INR 3,000 crores of cash. And until April 15, 20, your sales were very good. So I don't understand the reason why the Board has decided to prune the dividend. I don't know what you're creating this cash for. And what are you going to use it for?

Actually, we didn't actually think we were pruning the dividend, Rakesh.

Last year and this year you gave INR 4. It also declares confidence in your business. And you're carrying INR 3,000 crores of cash. At least, you should not have pruned the dividend. As a shareholder, I'm sorely, sorely disappointed.

Rakesh, we have INR 5 in FY '19 and INR 4 in FY '20 and INR 4 in FY '21.

No, maybe you have not pruned it, but I don't know. Giving a INR 4 dividend sitting on INR 3,000 crores of cash. I don't know what are you going to do with the cash. Are you in some emergency or you're requiring something for INR 2,000-odd crores? Anyway, you are a cash-generating business. And for us shareholders, we are not handsomely rewarded. I think this is probably, I don't know why you are having this money.

Can I just come in here. Actually, this is by far the highest payout ratio we ever have, okay? And we took that call also with cash in mind. That yes, we have the INR 3,000-plus crores of cash in hand, and which is exactly why we went way above what we have ever given. So the percentage that we pay out...

What is the payout policy you've declared?

It is declared. It is being declared. As I speak, it will be on our website very soon, okay? We have a policy. We are talking about a range on payout. So that is coming out. And this is really at the top of that range.

I mean, you still haven't formulated a policy?

No, no, no. We have a policy, but we are now more -- we're talking about it. We are giving you a range also as to what we are...

Share that policy, Subbu.

Sorry?

What is the range of payout you are declaring?

Yes. We are talking 25% to 40%. Okay. Yes.

So don't you think for a cash-generating business, it's a very, very minor percentage.

That is your point of view, Rakesh. Yes. It's a point of view. I guess also, I guess one thing. The cash that we are generating is also because we are doing a lot of gold on lease, right? If the gold on lease for some reason were to be curbed by Reserve Bank or anybody else just because gold imports are going up. And we are going to be liable. We need to be careful. We need to be conscious of the fact that this cash generation...

You can't be holding cash for a lifetime, Subbu. Holding cash for a lifetime, even saying for a lifetime that the policy can be reversed. Anyway, my point of view as a minority shareholder, I think you are being totally unfair to minority shareholders. That's my view. That's my opinion and my firm's opinion. And it's small within the thousands of companies that we do.

We'll take that as an input, Rakesh.

The next question is from the line of Amit Sachdeva from HSBC.

Congratulations on a great set of numbers. So my first question is on jewelry, because if I look at until Q3 or even Q2 as the whole recovery was happening, I would assume the growth was led by more Tier 2, Tier 3 towns and a lot of marginal area were also being added there. And in Q4, obviously, for delivering that kind of number, I would assume that metro markets, which were sluggish earlier perhaps would have come back to growth. And why I'm asking this question is because lockdowns is not uniform. Some cities are more impacted, some are less. So in that sense, if I were to look at the next quarter and the base effects, can you give us some regional color, like west was still recovering and west was more impacted last year and north was good. How should we think about this recovery phase in the light of large metros versus Tier 2, Tier 3 towns? Some understanding would be really helpful, Ajoy.

Yes. So you're right, it's been a differential recovery and growth. Let me say that Tier 2, Tier 3 towns continue to lead the growth. So the pattern of Tier 2, Tier 3 being faster recovery or higher recovery and higher growth compared to metro towns continued as a flavor and it continued even in quarter 4. If I were to give you a flavor, the growth, if I see quarter 4 from a buyer perspective because that's a useful customer-facing data. It has been led by east, followed by south, then north and then west. West has certainly been most impacted and it continues to be, as we know, Maharashtra taking the hit. Bombay and Delhi have been sluggish relative to the rest of the market. In the east, if I look at it, states like Bihar and Jharkhand, Odisha in the northeast and then West Bengal have led. And in the south, it's really TN which has powered ahead strongly for us at least, with Karnataka following after that. Punjab and Chandigarh are also decent in the north as well as UP. I must say UP was following a similar trend as Bihar and Jharkhand. West has been a tough situation. Bombay has been the worst impacted. Briefly in between Maharashtra started doing well, especially upcountry Maharashtra, but in the last several weeks, it's taken a hit. And Gujarat also has been fluctuating in its performance. MP has been doing well. So this gives you a flavor on, and I think this May, how we will proceed ahead will depend on how the kind of disease is spreading out. And we think what is happening now to Maharashtra will happen to Odisha later and so on and so forth. So we play by market, and we are anticipating different peaking in different markets.

Sure. That's really very helpful, Ajoy. So can I sort of see that, while Maharashtra is most impacted, but this has not yet recovered. So although the crisis is unfolding, if it is not widespread crisis like last year, like where there's a lockdown all over and all those things, you would probably think that you could still escape any hard landing of growth. Is it a fair assumption or is it still very uncertain?

Very uncertain, Amit. The situation is evolving on a day-to-day basis. And we think every market at some point in time will get impacted. It's a question of timing. And we are not able to predict. Yes, sorry, I was put on hold by mistake. Okay. Anyway, am I audible?

Yes. Yes. Ajoy, very audible.

Okay. So yes, I was saying the timing is going to vary. We think every market at some point will get impacted. And the problem that I was saying is that even Maharashtra, let's say, is likely to come out first. But it looks like based on the latest announcement that it's likely to remain shut down until 15th of May. And then we will hope for whatever best happens. It's very unpredictable and very difficult to give you a sense.

Sure. No, this is very, very helpful, Ajoy, that perspective. And second, if I may ask, like the last time I asked that, I noticed that you announced last time on Trunk sales of Taneira. This is why I'm also asking is, is the business the case still and Trunk is a pilot phase and a lot of economics are being tested. So I would assume that a lot of Trunk sales happened of Taneira last quarter. What was the experience and has it given you confidence what the business model could shape or is it still too early days? But I assume that some of it is well received in some markets. Can you give us some color of the aggressive plan you had on Trunk sales and taking Taneira deeper down to Tier 2, Tier 3 through existing Tanishq franchisees?

The Trunk sales of Taneira have been very, very... Rajesh, you're on the call, right? Sorry, one second. No, I'll take this question. The Trunk sales of Taneira have been very, very encouraging in the smaller towns, in cities like Patna and all that. We have a pretty ambitious plan for Taneira over the next few years and in FY '22. And specifics, as intimated, we'll share it in the investor conference in May that I spoke of. But overall, we also have 2 franchise stores now, Amit. Over the last 6 months, we have got into franchising with Taneira. The excitement to get into this business is growing by the day because everyone is so convinced about the customer value proposition that we have established. And in a way, we are very clear that we're going to do some kind of a Tanishq in the ethnic wear business with Taneira. So outlook is very, very good, very, very positive, more news about it in concrete terms in June.

[Operator Instructions] The next question is from the line of Aditya Soman from Goldman Sachs.

Two questions for me. Firstly, any update on how Golden Harvest is progressing? I think you had indicated in the previous call that you're also trying some short-term themes. Any update on that? And the second question, can you also give us -- I may have missed this, but can you also give us a sense of the customer growth for each of the verticals, watches, were they in line?

On Golden Harvest, Amit, sorry, not Amit, Aditya, the sales of Golden Harvest had been pretty robust. In fact, we've seen a good contribution for the year, up 21% versus 21% of last year as well. However, in the month of, from the month of Feb, March onwards and going into quarter 1, the contribution, understandably so, has come down to 15% because enrollments in quarter 1 were not there. And therefore, the impact of that is going to be faced now. And we have planned for it to be a lower, let's say, sales through Golden Harvest second quarter going ahead. Having said that, the enrollments have been good, both in quarter 3 and quarter 4 and even in April until the shutdown started happening. So that augurs well for the future. Your second question was on customer growth. I'll tell you jewelry and then maybe the others would be able to share. On jewelry, for the quarter, the overall buyer growth for quarter 4 stood at 39% over last year. Of course, we must factor in that last year there was a slight base effect. So this 39% is not really reflective. Maybe I would take it down by about 10%, 12%. So it will still be a healthy 25%-plus of buyer growth in jewelry in quarter 4. But I'll leave to the others to respond on watches.

This is Suparna. I wanted to talk about the watches. In watches, as has been published, the WOT growth had been around 8% in quarter 4. And similarly, Helios growth has also been good. Most of it is reflecting the quantity, the value is reflecting the quantity. Unlike in the first, in the second and the third quarter when there was a large increase in average price point, that has kind of evened out in the quarter 4 and that we saw across the channels, trade channel, LFS channel as well as e-com as well as growth of -- there wasn't a very big spike on the average UCP. Average UCP remained more or less and whatever growth we got was on the buyer growth.

Just one follow-up on the Golden Harvest. Can you give us a sense of what proportion of recruitment you're doing online or if that's even possible?

So on jewelry, I can say that recruitment of customers online has been phenomenal. We have seen for the year, if I were to look at between online and omni, and omni is very important in jewelry because of the high ticket price. We have seen a 4x off last year in terms of shared business. And therefore, it's exploding and it continues to be a very big driver. We expect to drive it even further, more than double it again. And we would like to chase that kind of ambition. On watches, perhaps Suparna might be able to share.

Sorry, my question was on Golden Harvest recruitment online, if that can be done online or it has to be done in stores?

Okay. Sorry, I missed that. Golden Harvest, yes, can now be completely done online through the app. And we earlier had some challenges on eKYC. That had been sorted out. And therefore, we can now do completely online as well. And we've had a good response. We think this can really grow dramatically. We have to push this engine a lot more to make people aware of it, et cetera. So yes, very, very happy with that, and it's happening fast. But the base was low. So it's starting from 0 virtually.

The next question is from the line of Tejash Shah from Spark Capital.

First, if you can quantify impact of import duty cut in the quarter on jewelry segment margins.

Yes. There was an impact on that. It will be there in the first quarter as well. But in the overall context of things, it's not as material as something that I would want to quantify. Yes, there was an impact.

Okay. Second question pertains to CaratLane. In a year where online was picking up across consumption categories. We have made a very decent expansion on footprint there. So how should we think about CaratLane going forward? Will it be omni strategy or offline stores will be a very sizable proportion of growth going forward for that brand?

So Venkat, you'll answer or you want me to take this?

I can do that. Actually, over the last 4 or 5 years, it's become very clear that CaratLane's growth lies in a combined strategy. And it's an omni strategy actually because there is a lot of discoveries that happens on this side and the handshake and the final product purchase happens in the store. And that's because the ticket size opportunities, even in the young women segment, the ticket size opportunities are large. And at INR 40,000 and INR 50,000, the customer would prefer to look at the products and buy rather than just look at an image and buy. So to that extent, not having a retail footprint expansion would not capitalize on that very large opportunity. So we're pushing both the buttons simultaneously to the hilt. That would be the strategy for CaratLane.

Sure. But the journey of omni here is slightly reversed that an online brand is going offline. So will it still be online heavy revenue model with top line being experience center or fulfillment center or it can even on revenue front, it can equalize going forward?

Yes. Because fulfillment is not the only role that the store would play. The store would certainly play the role of showcasing and persuading and convincing the customer from early stage to the later stage in their purchase journey. So it's an integral part because if it is a fulfillment center, then we don't need retail. We can be in the third floor of a commercial property as opposed to in the main area of a mall. So the operating costs will kick in then. That's why it's retailing and not warehouse.

And last, just one follow-up. Gold on lease emphasis has been talked about in the release today. So is it a tactical move for the year or is it going forward strategic as a key part of our procurement strategy?

You're talking about the bullion sale?

No. gold on lease has been called out as, there's a renewed emphasis there.

Yes. Yes. Gold on lease has been central to the growth of the jewelry division ever since 2000 or 2001 when we got it into our system. And a good spot purchase, which is essentially the purchases we make from customers through the exchange program or the outright jewelry. That share versus the gold on lease share in a way determines the capital employed in the business and keeps us asset-light and returns a certain, a very attractive level of capital, I mean, return on capital. So to that extent, the continuous management of that is critical to Titan Company's balance sheet and performance. And that's the angle for that, nothing more.

[Operator Instructions] The next question is from the line of Ashit Desai from Emkay Global.

My question is on studded jewelry. You highlighted the growth trend for jewelry across markets. Could you also share, I mean, the slower growth in studded, is it a feature across markets or is it more due to the sluggishness in some of your key markets like Maharashtra, Delhi, et cetera?

Yes. I'll just share with you. Yes, certainly, the mix, there are 2 factors, actually. There's a mix of markets and then there is a growth across markets. Now if I look at mix of markets, you are right, Bombay, Delhi will typically have a much higher studded mix for us. Those markets being a little bit on the back foot in last year and last quarter has played a role. Having said that, if I were to look at our quarter 4 numbers for studded buyers per se, it's been a fair mix across all the other markets. I cannot say that there is a regional dispersion which is kind of evident. I would certainly believe that because smaller towns had led the growth for us this year. And typically, studded ratio in those markets is lower than the larger metro markets, that has played a big role. Otherwise, I don't see any trend which says that studded sales are, in fact, the buyer growth on studded has been leading that of plain gold buyer growth, let's say, customer growth. It is the ticket value in plain because of gold price that has taken the value growth in plain higher. So there is no discernible trend of differential growth from the total sales growth. Whatever I shared for all the different states holds good even for studded.

Got it. Okay. And my second question is on jewelry margins. Does the business have a fair bit of operating leverage or it's largely, I mean, the fixed cost structure is pretty high in this business. I mean, not so much from this quarter perspective, but when we look at next year, I mean, when you have very high growth, with the cost savings that you've done this year, would it be fair to assume a reasonable amount of EBIT margin expansion over here or it will broadly remain in that 12%, 13% range?

So let's put it this say that amongst all the businesses, the jewelry business has the lowest amount of fixed costs as compared to all the other, low margin, low fixed cost. So the operating leverage is that way much lower compared to, let's say, watches or eyewear. Having said that, because the scale is substantial, there are certain costs which can kick in from operating leverage, for example, marketing costs or, let's say, employee costs, et cetera. So those are costs which we have actually looked at very, very sharply in the current year and also other fixed costs. To that extent, therefore, we've got some benefits and we hope to reap those benefits in the future year. But in terms of what the EBIT margin will look like, the challenges here are difficult. We would not be able to give you guidance, but I just want to give you a flavor that there are constant pressures on gross margins because of competitive intensity, which is happening across various markets. And our main goal is to ensure that we continue to grow market share and go towards our ambition that we had set out. Maybe, yes, a year has gone by which has kind of held us back, but our ambition continues to be that high. And we see tremendous headroom for market share gains. So to that extent, we would rather invest that money back into the market, back into the network and back into inventory, et cetera, to ensure that we are able to continue to grow aggressively and maybe maintain profitability over a period of time.

Got it. Got it. If I may squeeze just one small one last. I mean just wanted to know your aspirations for CaratLane margins. That's it from me.

Venkat, we can't hear you.

Nothing to say at the moment on the CaratLane margin. We will talk about it in our June conference event.

[Operator Instructions] The next question is from the line of Kunal Vora from BNP Paribas.

Just wanted to recheck, what has been the learning from FY '21 on impact of store closures? Is demand only postponed and it comes back as stores open and life normalizes or do you see any demand destruction? And would you say that the consumer behavior is different in case of purchase and like there is actual demand destruction as you've not seen any pent-up demand in that category. That is one. And second one was, what was the contribution of wedding and high-value studded jewelry in FY '21 versus FY '20? And where are you versus your market share aspirations in these segments?

Let me give you a larger view on this subject and then Ajoy can speak thereafter on the specific question that you asked. See, while the products that we sell are reasonably high-ticket categories and what you may generally consider as considered purchases, some of them and even in jewelry were also linked to events, even impulse to some extent. Now, for example, all our watch stores in the malls, whether it's Helios, World of Titan or Fastrack or even Linking Road, 100 Feet Road in Bangalore, there's a fair amount of young people who walk around in that area. And in a way, they're not in particular search of a particular product. But because the store is exciting, it is inviting them to go in and buy. Or there is a birthday that is happening in the month of April and so no purchase. And even past this, when the store is shut and the birthday is happening. And I doubt if that purchase will be postponed to a later date when the store actually opens. It's about the event and the magic of that day has passed. So to some extent, that sale is not going to come back. In jewelry, I would think maybe the majority certainly of the sale is in a way considered purchase because of the nature of the category as well as the ticket size. And it's like, especially if weddings don't happen, birthday is postponed. But if weddings happen and the stores are closed, that sale may not come back. So there's not an easy full kind of answer. But I think by and large, we are okay as a company as opposed to like an apparel company, for example, which would be far more impacted because of the nature of the category as well as the ticket size of the category. If the time passes, it becomes lost sale. That's how I think of it.

Yes. To add to Venkat's response, we saw last year, especially, let's say, the months of June, July, we saw minimalist milestone celebration coming back to us, maybe because they had planned those being purchased for the jewelry during their anniversary. And so we saw a spike in June, July. But thereafter, it settled down to what it was and weddings for sure. Your second question was on the contribution or growth of wedding. Can you just repeat that?

So wedding and high-value studded jewelry, what were the contribution to sales in FY '21 versus FY '20? And where are you versus your market share aspiration? Do you still see a lot of legroom for market share expansion in these 2 segments, like what you aspire to grow in?

Yes. So in terms of contribution, if I look at weddings, it may seem like for FY '21 we were same as last year, 23% last year and this year. However, if I were to knock off the impact of coins and then look at the contribution on the jewelry part of it, there is clearly a 1% improvement there with a 2% improvement which we saw in quarter 4. Quarter 4 was 24% this year versus 22% last year contribution and FY '21 has been 25% versus 24%. So there's a 1%, but we are still way off. Most jewelers actually see 50% to 60% contribution from weddings. So we still have a lot of headroom, notwithstanding the fact that we sell a lot of everyday adornment jewelry as well. On high-value studded, the growth has been decent in the second half, I must say. Earlier, we have seen a very depressed scenario in terms of what is the contribution. It has certainly come back to what it was last year. And in fact, for the year, it is the same contribution of around 10% over last year as well as this year, thanks to a good action on the second half. Opportunity is high, especially if you ask me on the solid there, where we are growing rapidly and the opportunity is really huge and milestones are very important. And we are very well pleased to kind of go after that. On the very high-value studded, I would say between the INR 2 lakhs to INR 10 lakhs space, the opportunity is richer for us. About INR 10 lakhs, there are many other constraints like PAN card and other things, which start getting into place. And those are things which are still a little, unless those things improve. But between the INR 2 lakhs to INR 10 lakhs, we certainly see a lot of opportunity for high-value studded as well.

The next question is from the line of Jay Gandhi from HDFC Securities.

Just a couple of questions. If you look at the gold on lease, it's nearly double that of a typical year and probably 3x that of FY '19 or '18. Just wanted to understand what are the underpinnings of the decisions that you go through which kind of dictates the maneuvering of resources in a certain direction?

Subbu, you want to answer that?

Yes. Yes.

Okay.

See, actually, what we would want to do as much as possible, and I'm going back in time 7, 8 years back before the curbs came on gold on lease at all, we used to source more than 70% of our gold on gold on lease, 2 reasons. One is, of course, the cost was lower. Secondly, it was a natural hedge. Therefore, any impact on financials on a quarter-on-quarter basis, that's actually minimal. Third, of course, is the fact that in those days, it was also not very easy hedging in India. Then if you remember, we had a curb which came in 2013 and '14. And then we had no option but to explore even more and more of the hedging here because we were not allowed to buy gold on lease, right? So we had to do that. And that, it started developing its own process, et cetera. And we've also got, came into a level where we were not worse off from a cost perspective also. Having said that, we still believe gold on lease is probably the best way of buying gold. As I said, the volatility in margins, clearly, the people valuations, all of that, it is still the lowest. And therefore, we would prefer to do it. It does give us a lot of cash also, as you can see now, the INR 3,000-plus crores of cash that we talked about is a result of that. So we would therefore focus as much as possible to get back to that same level of gold on lease as we used to do in the past.

That I understand. I'm just looking what's your FY '18 to date? All these issues that we had were historical, FY '18 to '21.

What has happened during that period was that the exchange goal, our exchange programs have become extremely popular from 2017 onwards, okay? And that contributed a lot to the gold akin to be buying it on spot. This year, we went ahead and actually disposed of some bullion and resorted to buying gold on lease. And that's the difference that we are talking about. So the gold exchange program has actually continued in its popularity. It is still contributing a substantial amount of the gold that we procure, but what we are doing is also swapping it to get as much gold on lease as possible.

Just one thing. So if I consider gold on lease as this low-cost debt and hence part of the capital employed because anyway this INR 3,000 crores cash cannot necessarily be used for dividends or whatever, at least largely. Is it an obnoxious assumption that we as an analyst community make?

Each analyst would see it differently. The reason we keep taking gold on lease as a payable in a way is because that's how it's traditionally been, okay? It's more of a supplier credit, and that's how we've been treating it, but the trade channel would possibly take the difference.

The next question is from the line of Percy Panthaki from IIFL.

Sir, just trying to understand your underlying performance for this quarter in the jewelry division. There were a couple of one-offs. One was the customs duty and one which is across all divisions, of course, is the reversal of the employee compensation cuts with retrospective effect from May. So your reported margins of 10.9% in the jewelry business, if I just want to look at the underlying performance and remove the one-offs for the quarter, these 2 one-offs which I spoke about, what would the margins be in that case? I just wanted to know that.

See, we won't be giving you those numbers here, okay? We have actually explained to you what basic reason or rather why the margin is lower than what it traditionally would have been. And that is particularly based on the top line that we achieve. But we mentioned basically 2 major reasons. One is the mix, okay, the studded ratio is still much, much lower than what it is in the past. The coin ratio is substantially higher than what it is in the past. So fundamentally, mix is the reason for this. On top of that, we also said that we have been looking at gaining share. That isn't focused so much on margins. So to that extent, our focus has been to gain share in a year where we thought this is the best thing to do. So that should explain your question. We can't give you anything more than that.

Okay. Some question to this. In an earlier question, I think someone mentioned that there would be some amount of custom duty hit in Q1 as well. So then understand why that would be the case because I thought this is a onetime correction of custom duty in the February budget, and you would have accounted for it completely whatever inventory you held as of 1st of February would have got marked down in this quarter.

Yes. Percy, we can't mark it down because our NRV is still higher than the cost. Okay. And therefore, we can only go as and when it gets complete.

Oh, I see. Okay.

The accounting is like that. From an accounting standard perspective, and therefore, it does play out then like this. That's context for you.

Oh, I see. Okay. Yes. That's all for me.

Thank you very much. Ladies and gentlemen, due to time constraints, that was the last question for today. I will now hand the conference over to Mr. C. K. Venkataraman for closing comments.

Thank you very much, everyone, once again for the exceptional support and the probing questions every time. And until we meet again. Goodbye.

Thank you very much. On behalf of Titan Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.