Citing consumption fatigue, Titan hints at weak Q2

By Viveat Susan Pinto , Business Standard, Mumbai | In Marketing | October 17, 2016
Titan derives 75-80% of its revenue from branded jewellery & the rest from watches, eyewear, others.

Watch-to-jewellery maker Titan has hinted at the possibility of a weak September quarter, saying consumption fatigue is setting into the consumer discretionary business.

Describing the fatigue as structural and here to stay, Chief Financial Officer Subramaniam S said sales of gold jewellery remained subdued in the quarter, the export and services business in watches was under pressure and growth in eyewear had slowed.

"While the customer walked into stores for good deals or new products and collections, the base demand remained weak," Subramaniam said. "The customer today seems enthused only by fresh and differentiated offerings, thanks to year-long discount/deals available online and offline. Though studded jewellery sales surpassed expectation, muted gold jewellery sales affected overall revenue growth."

Titan derives 75-80 per cent of revenue from branded jewellery and the rest largely from watches, eyewear and accessories. It also has a precision engineering division, a business-to-business operation. Titan's update comes when some consumer goods companies are getting vocal about the challenges they face. On Thursday, Unilever said the Indian market was under pressure and remained subdued.

Analysts expect the September quarter to be a muted one for fast-moving consumer goods, though on a long-term basis they say the environment should improve as the government devotes greater attention to job creation in urban areas and improvement of farm incomes in rural areas. In consumer discretionary, the trends appear mixed, with food, fashion and cinema (multiplexes) picking up, while jewellery retail shows signs of a slowdown.

Titan, in the past few years, has been looking at newer areas for growth as it looks to hedge itself from the risks of its core business. On Wednesday, Titan said it was exploring the category of ethnic wear for women and would experiment to understand consumer attitudes and preferences. "The pilot, which may include setting up a few stores, is expected to last about 12 months at the end of which the company will take a decision on the future course of action," it said. Earlier, the firm had ventured into perfumes in its bid to grow. It had also entered into a joint venture with Mont Blanc International, a subsidiary of Richemont Group SA, marking its presence in the luxury space.

And had acquired, a jewellery portal, as it looked to make inroads online.

Analysts say the investments Titan is making in these new areas should help it transform into a lifestyle brand, something company managing director Bhaskar Bhat has indicated from time to time.

While the financial year 2015-16 was a challenging one for Titan, net sales declined 5.3 per cent year-on-year to touch Rs 11,277.9 crore and net profit declined 15.5 per cent year-on-year to Rs 689.4 crore, the coming years should be better, analysts said.

In his quarterly update, Subramaniam said the second half of financial year 2016-17 had the festival season as well as some wedding dates, which, along with low inflation and Seventh Pay Commission related liquidity, could augur well for demand revival.