Titan Company Limited (500114) Earnings Call Transcript & Summary

You said may had these one-off factors, right? So if I were to kind of look at either the exit June or average of April and June, just to get a sense on normalized where how versus what we saw last quarter.

Thanks for that question. I just want to reiterate that the normalizing happened in June. It's already happened in June. So what you see for the quarter is after that normalizing and these one-off things are part of our industry. I mean there are auspicious times to buy. There are no [indiscernible] times to buy like we also mentioned in the analyst meet. This is pretty much [ behave ] and things tend to catch up. So what we -- like I said, what we may have lost in May, it appears that we have gained in June. So that averaging out of normalization has already happened. So you could take the quarter 1 average as the normalized kind of pace.

Okay. So where are it coming from is we were trying to get a sense on as gold prices, assuming gold prices remain where they are is quality doesn't continue. The assumption that I had was sales or value growth will trend towards buyer growth. And hence, to appreciate it because the realization from your understanding, the realization growth has some semblance of bunching up that probably have been. So that is where I was coming from. And if you could kind of -- if that understanding itself is inaccurate or it could help us understand how we should look at the difference between buyer growth and value growth as gold prices start to become Y-o-Y flattish.

I think it is true agree to conclude. One, when gold prices have softened, but I think we need to give some time to customer also make up their mind. Our also thesis is that our top line growth a kind of combination of some of these things when the gold prices would come down, more buyers will come in, and that is why we don't focus too much as a team and as a company on these things. I think it is too early to just see June month, whether it was more than 5% but I think that granular level of month by month 2.

And then there are regional differences in all these things, where weddings are happening. adhik-maas is not Southeast or it is more or history. So I think let us give it some more time to see the impact on continue [indiscernible].

If I may add, if you're looking for what is that we are targeting, we are targeting, as always, a double-digit aggressive growth, and that's something which we shared even in the Investor Day. Those targets and our ambitions don't go away, how they play out between buyer, ticket size, gold prices, that's for us to manage.

I hear that. Just a second bit on the [indiscernible] gain and loss. Just if you remind us what exactly drives this? Is this more change in mix towards exchange? Or if you could just help explain if that's okay. And so just to refresh --

So this time, as I was saying, there were price differences between international market and domestic market and we procured the advanced procurement, which is based on the domestic market. Inventory valuation happens on the international benchmarks because there is no spot benchmark in [indiscernible] and it gives rise to account in [indiscernible]. But inventory is being done on a certain basis percentage point, hedges are being done at a certain difference point. And that difference generally is very manageable and will not be called out quarter-on-quarter. But in current situation on [ CD ], custom duty impact, all of a sudden created wide gap between international and domestic, and we ended a procuring quite a bit gold at that [indiscernible] to -- so that is why we are calling this out. Every quarter, a small amount of this variation between inventory valuation and [indiscernible] happens.

Your next question from a [indiscernible] with IIFL Capital.

This is Percy Panthaki [indiscernible]. Yes. So just wanted to understand, going ahead, if the gold price remains at where it is by Q4, the Y-o-Y inflation will become 0. And a large part of our growth is being driven by fuel price inflation, in a scenario where gold price inflation is 0, do you think we can sort of maintain a 18% to 20% kind of top line growth in that kind of scenario? And I'm not talking only about Q4, although the anniversarization happens in Q4, this is more of a general or structural kind of a query that if for a few quarters, the Y-o-Y gold price inflation is 0 in that scenario, does our growth rate come down versus our targeted 18% to 20% band.

Yes. So I think in plan across all our brands takes into account this context. In a scenario like that, we would certainly go all out to acquire buyers and use that to drive growth because fundamentally, our approach to the businesses is an optimistic one, and it is one to drive overall growth like Ajoy mentioned. So whenever there is turbulence or some kind of gold rate playing in people's mind, then there is a certain playbook to give them comfort and drive growth. Whenever that goes out of the equation and there is more stability, then obviously, what we would do would be to gain acquire customers and overall grow the business. So we will have to see how things play out and closer to that situation, then we choose the cards that we have to play. But what we are saying is true. It could play out that way, but we'll have to wait and see.

Understood. Related to query to this is, again, in that kind of a gold price scenario, do you see the quantum of sort of competitive spending either in terms of advertisement or in terms of discounts, promotions sort of normalizing and in context of that, do you expect sort of the headwind on your margins to sort of maybe turn into a tailwind and you could see even with a slightly lower both being able to deliver that 18% to 20% bottom line growth?

Honestly, and I should go back last 2, 3 years, we have seen all kinds of scenarios, now to pretty much have a playbook for all of them. In a scenario when competitive intensity is at its peak, people are discounting like crazy or a time when gold rates are stable or it's going up, it's going down to -- by now, we think we have a handle. We are right. Some new situation could emerge and we might end up running from it. But by and large, we think we have at least some plans or some experiences that can help us when these situations kind of come up.

It's just one point I can add on that if you remember in our names day, we guided FY [ '13 ] number. So quarter-on-quarter numbers can go up because some of the situation, you may not react immediately. But overall, medium to long term, we had always said that a good strong double-digit growth, and that is how you will read to that FY [ '15 ] number. So that has not changed at all in our mind and we don't have any doubt at this point of time that we are not matching to [indiscernible].

And over the last several quarters, because of the gold price inflation, the entire industry has done a lot of work in terms of making the jewelry lighter [indiscernible] versus earlier if a piece, how is the same look and feel or design, et cetera, making the same kind of piece or similar kind of piece lighter in weight. If the gold price remains flat for a longer period of time, do you think that could be one of the lever in terms of gradually increasing or reverting back to the -- at least increasing slightly the weight per piece. I mean, doing the reverse of what we did over the last 2 to 3 years.

So like Ajoy said sometime back, our approach always has been not to solve versus to merely sell and we need to do things as an industry and also as a company to bring more consumers in the category, keep them invested in the category. And for that, jewelry has to be both exciting and accessible. And accessibility comes from keeping it right way looking at a variety of cartages. Looking at an exchange program that is strong to get them to recycle, so all these are different levers that we are using to keep consumers to keep jewelry accessible to a wide set of consumers across different town classes that we are present in.

Yes. If I may just step in once again. I think the concerns that are [indiscernible] across several questions across different people is if gold prices don't go up or they remain down, can you guys manage to grow. Okay. And therefore, it's between buyers, tickets , these are not too independent entities, which kind of move on their own. These are related. Few years back and a few quarters back, I had enough questions of people asking me [indiscernible] gold prices have gone so much how are we going to continue to grow. Now the question is if gold prices don't go up, how will you grow? So I think we have seen buyer growth actually taper down in the last couple of years because gold prices went up dramatically. Why can't the reverse happen? Because India's love for gold has not gone away. At the same time, India is not going away. So I think if you were to step back a little bit and look a few years ahead, and not get worried about a particular month-on-month situation on gold price. I believe the headroom is huge, not just for the overall industry, but certainly for us as a company because our market share is also still single digit. So for us to target a healthy double-digit growth in jewelry is inevitable. How it plays out in a particular month and quarter might vary a little bit, but I'm very bullish on that. And margins, I think, will follow if we are able to manage the execution there.

The next question comes from the line of Jay Doshi with Kotak.

Congratulations on good execution in selling environment. I've got a couple of questions. So one is -- could you comment a little bit on competitive intensity because the last 2, 3 years in a rising gold price environment, there were quite a few discounts by other layers on making charges and all. Now with gold price stabilizing, are you seeing that the competitive pressure on making charges, gold rate markup all that has eased a little bit? That's my first question. And second question is, recently visiting some stores and I observed that India had was advertising 50% discount on diamond value and then my sort of personal experience by visiting [indiscernible] in the ongoing festival of diamond indicates that even your discounts and diamond value this time around is a little bit higher than what it usually is in AD. So is this because you are currently consuming low-cost, low-price natural diamond inventory and so you are better positioned to sort of offer better value through discounts? Or is the market more competitive on study jewelry at this point of time, which is forcing due to probably offer slightly higher discounts in this equity versus last year?

Okay. So I'll start from reverse order. So the 4D offer we have this time is a flat 20% of Diamond was pretty much the same as the last one in the months of Jan, Feb. We may have some products, which may be aged where we will be offering a higher discount, but binaries, the structure of the offer has not changed in any manner. As far as competitive intensity goes in -- I mean, we are all aware of a number of brands, number of stores number of players that are increasing in the category. And obviously, that brings a certain competitive intensity to bear. And discounting is something that keeps happening, which is different in different markets based on the context of that market and also the segment, I mean, I'll actually request [indiscernible] to come in -- Yes. because if you were to -- no, because it's -- yes.

Like [ Arun ] said, we also pretty much have the similar offer so that we ran it was running in the past and especially after the announcement and subsequent impact that happened, we quickly responded, came up with a ore-like attractive for customers. In fact, May 2nd half and June has been kind of a record kind of a performance that we saw. So we could put the impression that the additional one had because we could respond to the situation better. But in terms of overall discount, I don't think there is a significant structural change.

Sorry, did you answer the question on making charges for the plan goes how is the competitive intensity there?

No. Yes. I mean we don't see a substantial increase in competitive intensity. As you are aware, it's only been going up or the 2 to 3 year.

Sir, my question was whether you've seen easing of competitive intensity in plain gold jewellery given that low prices have stabilized and -- okay, so no more changes.

We're not seeing any leasing up of competitive intensity. We are seeing it more of the same. Obviously, the intensity in certain geographies is much higher and has been much higher in the last 2 to 3 years, for example, in [indiscernible]. Right? So there are regional dispersions, which are there, but nothing specifically to call out at the either it's gone up significantly or it's come down significantly.

Your next question comes from the line of Harit Kapoor with Investec.

So first question is on exchange. So if you could give a broad breakup of how much exchange share in procurement has gone up this quarter, I would assume it would have peaked in this quarter because of the situation. So this is some sense versus Q1 last year? And have you seen some basis points impact on margin on account of that as well. That's my first question.

Okay. So specifically on exchange, I think it's been a creeping increase from the time that we've been investing significantly behind exchange since, I think, September of last year. But during -- when the post the PMs gone out when we went into a bit of an overdrive on our exchange communication. And we also saw other drillers jump onto that bandwagon. We did see an upswing for that period of about 3 weeks, but then it has again got normalized since then. So [ Exchange ] continues to be a big driver of customer acquisition and a big driver of growth for us. And like we have said in the past, the sale that comes from exchange, both the exchange of old gold bought elsewhere and the gold bought [indiscernible] exceeds 50% of our -- of the business. So that's a trend that is sustaining. But yes, you're right. When everyone went on to an overdrive during those 3 weeks in May, the share did go up. But thereafter, I would say it is pretty much normalized.

Got it. So that could have a slight marginal basis point sequential improvement over the next 3 quarters, right, given that May might have been slightly lower gross margin for you just because of the nature of procurement. Is that the right way to think about it?

No, I don't think you should read anything specific into that. I would urge you all not to read anything specific into that.

Got it. Got it. And the second question was on the 2 subsidiaries, [indiscernible], you did give some estimates for the 4-year period. But the start of the 4-year period, especially on margins on both steel [indiscernible] have been significantly significant. So just wanted to get your sense of is steel a more kind of revenue booking situation led margin improvement? And even for [indiscernible], I mean, are these numbers surprising you on the operating leverage that you're getting?

So on a like a first answer, team extruders project kind of business and where a certain lumpiness to come with the margin and in this quarter, we did work of, I would say, the servicing business of certain set of equipment, which we call restarting where they are in the nature of service where you have engineers on to [indiscernible]. So that was quite substantial. Overall, long-term growth team is on a very strong digit but the normalized margin would be aggravating towards 12% to 15%, 16% this year full year basis, they can be higher. That's the trend I see it mid to long term, you'll see that kind of business. They will deliver. As far as [ CaratLane ] is concerned, we have always said be gradually go towards two-digit EBIT margin, more like [indiscernible] kind of margin portfolio come out. It's there. Okay. So they have delivered 9.6%. I think something like that, 90% for [indiscernible]. So we are normal should be towards 10%. Again, quarter-to-quarter differences can be there, but this should eventually become very stabilized around that number to my mind. And in the long term, even depending on how the jewelry industry gold price dynamics work out they can either progress towards 11% or stay around that number. But it's very [ disparate ] to talk about so much in the future, but we have always thought that [indiscernible] to increase towards the digital [indiscernible].

Yes, I wanted to also add both these subsidiaries are still on a significant growth path, okay? And the opportunity to grow is significant and substantial and we will continue to prioritize top line growth in both of them. Therefore, margins will kind of play out the way they have to play out. And therefore, I would read more in the growth story rather than on the margin story.

The next question comes from the line of Ashish Kanodia with Citi.

First question was given the volatility in gold price, what has been the trend for new sign-ups for both gold and [indiscernible] advantage in the last 5, 6 months, are they broadly tracking in line with the kind of jewelry growth you are seeing?

Yes. Thanks for that question. I think on a value basis, we are tracking. But I would say that we started with the Golden Harvest program many years back. And 2, 3 years back, we added [ Holden ] advantage. What's really happening is the dynamic between the 2 where we are seeing most customers prefer [indiscernible] golden advantage because it helps the rupee cost averaging, and we're seeing a shift of preference from [ Golden ] ages to golden advantage, which in a sense is good for the customer and was also introduced to solve the problem of gold rates being either increasing or kind of moving up and down. So that's really the dynamic that is playing out there. But on the whole, I think it's progressing in line with the business on a value basis in terms of the growth in redemption of both these programs versus the growth in business.

Sure. The second question was just on the way 1Q and even if you look at 4Q, I think new definitely saw moderation in coins growth. And when you look at [ plaingold ] and both studies the growth was still in line with what was in [indiscernible] despite volatile coal price and May, June, I think pace, et cetera. To that extent, are you seeing more -- and given maybe the gold price has been on a downward trajectory. So are you seeing that gold coin demand is actually now losing more tracks? It may still be growing faster than the jewelry growth, but losing [indiscernible] versus what it was doing 2, 3 quarters back. And to that extent, it should ideally help with a slightly better mix and margins?

That is what we expect, but the gold price concluding that it is on a downward trajectory will be to mature to my mind, last 2, 3 days, if anything is to be seen. Again, they have started in a geopolitics normalize, I would believe gold prices can again go up for time in [indiscernible]. But to this point, yes, the kind of growth Y-o-Y coin was showing, it should start moderating.

Yes. Sure. And just last bid, I think [indiscernible] talked about the gross margin initiative. And over the last 3 years, on the margins, you had taken various initiatives are and then working on alloy. So anything which you would like to share on the gross margin expansion, like what initiatives we are taking?

No, I don't think we are going into that much detail, but suffice to say whatever have we spoken about lower tariffs, there is a [indiscernible] program. There are sourcing strategies, et cetera. It's a mix of various banks. We certainly don't want to give more detail on this.

Last bit on the natural diamond prices, at least on the retail part in India, what has been the trend? Is it more stable, both for smaller stores and as well as for solid peers? Are they stabilized in the last 6 months?

Yes, we have seen more stability, perhaps in the pricing both of solids as well as small guidance. Was that the question? Or did I miss answering?

My question was on the retail part, not more from sourcing, but at least at the retail and at the consumer line era.

So we have been -- our prices are stable yes, for both -- sure. I think maybe the intent of your question would be, how is that playing out vis-a-vis the [indiscernible] diamond and how the narrative playing out in the mind of the customer. I think at the market level, it has stabilized and that narrative, which was very prominent towards [indiscernible] and natural are going on. That narrative seems to have gone down substantially. And I think both exist in the market. Maybe that's the sentiment behind your question, I was picking up. Yes. Because studies we have seen improving, so that's helpful. Pricing is stable and narrative and sentiment is also stable.

Ladies and gentlemen, we will take this as our last question for today. I now hand the conference over to Mr. Chawla for closing comments.

Yes. Thanks. Interesting set of questions that keep us on our toes and thinking of our feet literally. Just wanted to and at a very broad level in some comments, I think all our brands and businesses, when you look at jewelry, watches, you look at our subsidiaries, look at [indiscernible], look at teams, look at fragrances and bags, pretty much all our businesses have done well and the growth, what we have seen in quarter 1. And we are also seeing that July also is not bad. So I'm seeing a certain positivity so far in the last 4 months, how things play out in the near future, of course, will depend on so many other sources. We think we are on trajectory for delivering the kind of growth that we have promised in the Investor Day. And we hope that we can, in fact, [indiscernible] it in the current year because we've started very well. Second comment I want to make is there was a lot of questions on the dynamic between buyer buyers, gold price and all of that. I think overall, we are committed to [indiscernible] them. We are committed to a double-digit healthy growth in value in the jewelry business. So that's the only way we get to our committed FY [ '30 ] goals that we've said. In a particular quarter or in 2 quarters, we might -- should we be looking like a power play that we hit the ball out of the park. But it's not just us. The market also has done very well. I wouldn't get too carried away by that. Neither will I get too carried away by a particular quarter is there is some volatility and some fluctuation in the market due to external forces or gold price. I think the larger piece, I would like to maybe direct all of us towards is that the headroom for growth for all our businesses is very high, partly because of the tailwinds of formulization actually to a large extent because of India growth story middle India, multiple segments, portfolio play and all of those. And this is true for Jewelry. This is true for [indiscernible]. This is true for watches. This is too for fragrances, bags, is all of them. We have both headroom for market share gain as well as India doing very well, many segments coming into the consumption basket and the premiumization story. All the 5, 6, 7 forces that we talked about when we met specifically on Judy, I would reiterate that our growth drivers on gaining market share through regionalization through high-value studies, through retail transformation through brand differentiation through portfolio play and through core growth in both studied and gold in the sub-50 sub 1 lakh kind of price points through buyer growth. All those growth levers continue to hold good and we stay focused on the long-term strategy and value creation while taking in our stride, some positives that we might have received in a couple of quarters and building on them rather than getting worried about whether we can deliver the same levels of growth. So just wanted to kind of direct everybody's attention to a larger story and not maybe getting too carried away by 1 quarter earlier. Margins will play out the way we have spoken. If we are lucky, we can do even better. But thank you so much for all your questions, and look forward to catching up with you once again next quarter. Bye.

Thank you, members of the management. On behalf of Titan Company Limited, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your lines. Thank you.