Ladies and gentlemen, good day and welcome to the Q4 FY22 earnings conference call of Titan Company Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touchtone phone. 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.
Thank you very much. Welcome to everyone on the call from my colleagues and me at Titan here at Taj Bengaluru on this Q4 FY 2022 earnings call. Very, very satisfying quarter in a very challenging situation with COVID third-wave lockdowns for some weeks and the international conflict starting late February, going all the way to the end of the year, affecting oil prices and including prices of and creating a lot of uncertainty in consumer sentiment. Despite all that, we ended the FY 22 on a very good note. Equally, as importantly, our preparations for a very, very ambitious FY 23 were also completed in that same quarter. We prepared well enough to take a very good condition for FY 23 as well. I have, you know, nothing really more to say, and I would request the questions to come in for us to answer.
Before your question come in, Venkat, I would just like to call out few specific items related to quarter four and FY 22 performance. And also Ashok Sonthalia here, and welcome to everyone to the call. It's great to be talking to you guys on this auspicious day of Akshaya Tritiya. You are all well aware that Titan has a long-standing philosophy of sharing its prosperity and success with all people in an equitable manner. This year, 2021-2022 has been exceptional for all of us in a multiple ways, and our profit performance has been quite good.
Therefore, an ex-gratia amount of INR 72 crore at standalone level and a total of INR 82 crore at consolidated level have been provided for in the quarter four accounts. During the quarter, the company also came up with a voluntary retirement scheme for employees in the month of March 2022, and a charge of INR 61 crore at standalone level and INR 64 crore at consolidated level on this account also has been recorded in quarter four PNL as an exceptional item. Both items put together a total charge of INR 123 crore on a standalone has been made in PNL, and significant part of this ex-gratia amount is reflected in the employee cost line item.
Normalizing for the ex-gratia amount, and you know, VRS amount, like to like, EBIT and PBT for the quarter are at INR 841 crore and INR 787 crore respectively. It is an EBIT margin of 12.1% and PBT margin of 11.3%. For the full year FY 22, PBT before ex-gratia and exceptional item stood at INR 3,054 crore. EBIT margin and PBT margin is 12.3% and 11.6% respectively. With this, I would like to open the floor for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Yes, sir. Thanks. My first question is on Fastrack. Fastrack is the only format wherein in FY 22 there has been no store addition. In fact, there has been a net closure of five stores. When I see the retail growth also, in both full year FY 22 and Q4, the like-for-like sales growth has been pretty disappointing. I understand Omicron impact in Q4, but FY 22, 32% sales dip in Fastrack retail. What is the way forward here? What has been the issue in FY 22?
This is Suparna from the Watches and Wearables division. Abneesh, Fastrack store format is in the process of being reimagined, and that is why we didn't add any store this year. We have a new store design ready, and once that is fine-tuned, we are going to roll out. In fact, in Q1 itself, we have seven store locations finalized and awaiting the new store design. I think there are two parts to it. One is the revival of the Fastrack store format and bringing in a lot more experiential hooks into the store format.
I think the larger point also is that for young people, online is the natural default thing, and we have seen Fastrack do very well in both our own brand e-commerce as well as in marketplace e-commerce. Therefore the need to totally reimagine the Fastrack. Work in progress, and next financial year we have a plan of opening another 10-12 stores various parts of the country.
Sure. Thanks. My second question is on Taneira. Sales growth of 4% in Q4. I understand the Omicron impact, but on a base of 14 stores, for the full year you added 6 stores, which is a big addition on that kind of a base. This 4% growth, would you say that you are a bit disappointed with that or is it more of Omicron? How is the model shaping up? Are you now much more confident versus, say, when you started the year?
Abneesh and everyone else, I'm introducing Ambuj Narayan, joined as CEO of our business a few months ago.
Yeah. Good evening and welcome to the call. Happy to be here. Yes, bit disappointed, but when I look at the end and our January was
I'm sorry to interrupt you, sir, but we cannot hear you clearly.
Disturbance in the call. It was largely due to Omicron. Now we have opened six stores last year, and there is a very good pipeline of stores that's coming up. We are confident about Taneira and doing very well in the coming year.
Sure. Last quick question. Titan EyePlus, -4%, same value growth, so dip in Q4. Any competitive intensity increase has happened or it's again linked to the Omicron itself in terms of retail growth?
Hi, Abneesh, this is Saumen from the Eyecare division. Like you said, Omicron was certainly a factor for the month of January. In the month of March, while Titan EyePlus channel has done sale more or less okay, we also have to deal with some store closure. Overall for the division, we also have to do certain amount of channel correction. That's why overall figure is muted. Otherwise we haven't seen any different kind of a you know competitive activity. It is just the combined effect of Omicron and the year-end correction that we wanted to make sure the system is clean to take off from the day one of the next year.
Sure. Thanks for that,[a] . That's all from my side. Thanks.
Thank you.
Thank you. The next question is from the line of Vishal Gutka from PhillipCapital. Please go ahead.
Yeah, Ajoy . I had just a couple of questions. Firstly on the loan facility basically, like Bajaj Finance provide for consumer durable, is there any regulation restricting what they call to provide finance for purchase of jewelry? Because lately a couple of jewelers who have filed their IPO, they stated that there are some parties providing finance for purchase of high value set jewelry. Just wanted to know your thoughts on that. Just wanted to know what is the contribution of Golden Harvest Scheme as well as gold exchange program for the quarter.
On the first point, I think there is an issue there because when RBI did EMI on jewelry and had not done years back, and the whole enhance the accumulation of monetary assets. That was the view that RBI had taken, and I guess that would apply equally to loans as well. We had a very vibrant EMI program that we had begun as a pilot in Bangalore in 2016, and we were planning to take it national when RBI came up with this monetary assets not financed. On the Golden Harvest, sorry.
Hi, Ajoy here. On the Golden Harvest contribution, the contribution has gone up compared to last year. It's at 18% contribution to the sale in the quarter versus 15% in the previous year in quarter. However, in FY 20 in quarter four, it was at around 20%. Due to disruptions in enrollments in the subsequent two years, it is still catching up. Enrollment levels are very good. In fact, Q4, we have seen very good growth in enrollments in quarter four, and even in that has continued in the month of April. Going forward, I think post these two years of disruption, maybe this quarter it'll continue to see the effect of last year's disruption in Q1, but thereafter I think we should be on a steady regime.
Overall 18% contribution versus 15% last year.
Okay. Their contribution of gold exchange program for the quarter?
That's also been good. It was 28% versus 27% the previous year in terms of contribution.
Okay. The last question from my side on the international expansion front, I think we have opened one more store, I think in USA apart from couple of stores in UAE. What is the outlook going there? What is the guidance in the medium term? How many stores we are looking with regards to international expansion for the business?
Please wait till next Friday.
Okay, fine. Thank you.
Press conference in Bombay next Friday.
Okay, fine. Thanks. Bye.
Thank you. The next question is from the line of Amit Sachdeva from ICICI. Please go ahead.
Hi. Good afternoon, everybody. Thank you, [a], for taking my question. Just a small question on the demand outlook, Venkat and Ajoy. Given the gold price surge in March was pretty precipitous, but I assume February was going okay and January was somewhat impacted. Wedding season seems to be very good and there was a hope at least that, you know, that demand outlook should be robust, if not disruption continuing on gold prices. Can you give us some thoughts on how April has gone? Given the base is also very benign, but how one should think about demand picture in the current outlook as some challenges which you mentioned are still persisting?
Yeah. I'll get Ajoy and others to come in in a minute. Amit, while you know the conditions in quarter four were finally not conducive to overall demand, and we also have to measure our performance from a competitive point of view and not just our growth or decline in sales. Our sense is from a competitive point of view, we continue to be strong in every category where we operate in quarter four. Therefore, blip, which is such a large external factor, you know, we don't have to think about it or worry about it, just move on. That's sort of putting it behind us kind of thing. April has begun very well.
We're very, very satisfied with the first month of the year, and we are quite planning for the targets that we have set up for ourselves for the year. On that, we are on target.
Sure. That's very good to hear, Venkat. Sorry, Ajoy, you were saying something. Please.
Yeah. I'll just add on to that. Gold price volatility has impacted, let's say, big ticket value purchases, especially for wedding. This is particularly true in March, just to some extent in April. Having said that, I mean, we are very, very happy with our April top line. We are expecting now that gold prices in the last at least few days, at least last one week, seems to have kind of moderated downwards. Perhaps people were also just waiting and holding back to, you know, see how things shape up on the gold price front. We are actually quite hopeful. In fact, we are also seeing, as you said, there are a lot of weddings. It's been a.
Mm-hmm
You know, quarter one with Akshaya Tritiya and weddings coming after, you know, two years now, three years actually.
Sure
Last two years has been tough. We are very positive and hopeful. In fact, we are seeing good traction. Very happy with it.
Great. That's really good to hear, Ajoy. In that context, you know, also good to hear that Venkat mentioning that there's an ambitious target for FY 23 without adhering to guidance, what, how we should read that statement?
What it means?
Yes. I mean, because given the FY 22 has been at least a very good year and, are we looking at 20% kind of growth or higher? Because at least there was a larger plan to go in strong double-digit growth as such structurally. Given this, when you say ambitious, how one should think about those numbers?
Actually, we are not giving a guidance on that, for FY 23, Amit. Not yet at least.
Yeah.
You know, the opportunity for the company in every category it operates, where it is leader today in three businesses, but in others, picking up for a huge headroom. In every business we are looking at a good growth, which together translates as a very ambitious growth for the company. You can just sort of look back to the past about whenever we've used the word ambitious, what is the kind of figure we have talked about, and imagine the best.
Okay, understood. Understood, Venkat. Perfect. No, I didn't want a guidance, to be honest. I just wanted to understand whether this confidence is coming from the good demand conditions we've seen in April and continuing into whatever this week, et cetera.
Yeah, sure. The ambition itself was set, you know, about 10 weeks back, middle of February, when we are even in the middle of, in fact, wave three, but looking at the opportunity that the country represents for the company.
Sure. No, that's helpful, Venkat. Just a small question on VRS and couple of exceptional items that you talked about. Well, we see also, you know, margins in watches, et cetera, are very weak, you know. Is it something to do with the disproportionately impacting watches, VRS and other things? Or is there something to read in margins? Can you give us a bit of margin anatomy on what has happened this quarter so that we could really appreciate what has really gone on there?
You are right. Like, watches from the brand cover and both these exceptional points are related to manpower and headcount. Watches have a high share of manpower and headcount in the business, and that is why they have kind of absorbed higher proportion of ex-gratia as well as VRS, and that is reflecting in their slightly subdued margin. Yeah.
Got it. If you were to sort of exclude that, what would be the watches margin?
The Watches EBIT margin for the quarter would be 6.7%, and for the year would be 6.9%.
Got it. Got it.
You must also factor in that they have not yet kind of fully recovered to fundamental level. They have grown, but yeah. There is opportunity to further improve.
The nature of the category, especially if you compare it with eye care or jewelry, is the most challenging category from a consumption point of view these times of everything, working from home included.
Sure.
We're hoping and expecting FY 23 will be rather different.
Got it. Thanks so much, Venkat and Ajoy and everyone. Thank you for. That's all [we] need.
Thank you. The next question is from the line of Rakesh Jhunjhunwala from RARE Enterprises. Please go ahead.
Yeah, good evening, sir. What is the reason for losses in watches and eyewear?
Sorry?
What is the reason for losses in watches and eyewear?
Exceptional items.
Let me answer, Rakesh, Ashok here. If you take out these ex-gratia and VRS, then watches actually in quarter four had INR 42 crore of EBIT, and a full year basis, INR 160 crore of EBIT. As far as eye care is concerned, they had for the quarter INR 3 crore EBIT and, INR 61 crore of EBIT for the full year. In watches also there is one more item is sitting in their PNL in March. You know, like we have this business associates meets. I'm sorry, eye care. Eye care business associate meets happened in this quarter, and which also had, about INR 10 crore of impact on their profitability.
INR 10 crore cost?
Yeah.
Business is only INR 60 crore a year.
Actually, Rakesh, you know, we've had this tradition of what is called a business associates meet which happened-
You get an associate to pay for it also.
Preparing for FY 23, Rakesh.
Huh?
That is why in March we're bringing everyone together for the associate meet.
It happened, used to happen once in two years, and the last time we did it was, June of 2019. We're doing it after three years. It's been a significant part of building, you know, confidence, camaraderie, team esprit de corps across the company system to deliver results year- after- year.
Where was it held this year?
Sorry?
Where was it held this year?
Where was it held?
This was in Dubai. Rakesh, it is shown that it was done in Dubai.
Anyway, congrats on a fine result. I think market share growing. Adding maybe in for some surprise. Anyway, congrats, and thank you for the good dividend. I thought it. I hope it could be better. Correct. [Dil Maange More. Dil Maange More.] We have a defined policy, 1/3 or 40% or whatever.
We have a range, 25%-40%, and this payout translates into about 31%. Keeping the growth ambition in mind and our requirement, I thought this is a good level, which we can consistently and the good performance, everything is reflecting.
We are not giving a bonus also now for 15 years. The company's trajectory has changed completely. I think request that give return and then give bonus also.
Of course, we can bring that feedback, and we can look at it some point in time board.
I think we do it.
Okay.
I mean, can we market sizing? I think our brand is
Sorry, what was that, Rakesh?
Our brand is Panache, both, all the brands are Actually, when I see the Zellbury stuff, I feel grateful.
Thank you.
Oh, yeah.
Thank you.
I think we got to work that man who asked, we got to work on Fastrack, sir. India is such a young country, and I think Fastrack is the most desired brand.
Yes.
Yeah, feedback noted.
Which one are we not able to explain? India is such a young country. If I was not a world leader, India could be fine.
Actually, the potential is huge, and we are working on a big revival plan for Fastrack with product-
Unless you increase the range of products. You know why we don't have a deodorant? Because we're like a brand in these or those areas. Remember, I think you don't need the biggest market in with Titan marketing and Fastrack advertising. I think we should go with deodorant, handbag, ladies handbag.
We have a big plan on the bags. On 13th we'll talk about it.
What did you say, sir?
The 13th we have this investor conference in Bombay.
Oh, I might not be able to come.
Sure, sure.
Are you Zooming? Doing a conference?
No, no, in person.
I know it is, but if I'm not able to come in person then.
ITC Parel Grand Maratha. Maratha, I think. ITC Maratha.
No, ITC Maratha.
Sorry. Bombay.
No, I'm saying you are going to Zoom it?
No, in person.
No, it is in person.
We are not doing.
Pardon?
We are not planning to have a parallel Zoom on that.
Why don't you have it, sir? We can also. People from abroad can also attend.
We will explore.
Well, there's nothing. There's no problem in adding. There's no regulation. I don't know why you're hesitating, sir. Anyway, congrats on a fine performance. God bless.
Thank you. The next question is from the line of Manoj Menon from ICICI Securities. Please go ahead.
Hi. Hi, team. Just two quick ones on jewelry and a bookkeeping question after that. One, you know, on just an update on the gold hallmarking, you know, implementation, the regulation law, et cetera, has been around for a while. It'll be helpful on how are you finding actually on the on-the-ground implementation. Second question on jewelry to Ajoy is, you know, look, as a consumer, you know, I've been observing, or it's my interpretation of what I see, is that there's a lot of action which, you know, you seems to be, you know, taking to actually make the brand younger. Basically, if you agree with the hypothesis, you know, or no, and if yes, it'd be super helpful on what exactly you're trying to attempt here. Thank you.
Yeah, Manoj. Hi. Ajoy here. Just the first one on the hallmarking. I think, hallmarking as a process has kind of stabilized across the districts that were identified. We have not gone beyond that. Within those districts, also we see that there is a greater tendency because of the nature of the way hallmarking laws have been framed, it is at the point of first sale. So wherever jewelry is getting manufactured, those centers are getting loaded, other centers are not. So it's. In the long run, they'll have to modify it, I think, so that across the country, hallmarking can be spread out. Right now it looks like it there's a traffic jam that ends up at the bigger cities where jewelry gets made. But anyway, in a way, they are checking.
They are, the authorities keep coming to the stores. They keep visiting JAs. Authorities are trying to ensure it is implemented well. Having said that, we have still received anecdotal feedback now, in some of our stores. Hallmark jewelry continues to be inappropriate when we look at it in our karat meter or when we melt. We can't say whether some of it was recently hallmarked or it might have been an older hallmark jewelry. I think, a big initiative like this for such a large fragmented industry will take a little longer to stabilize. The outcome of this I can share. Well, I don't know whether it's an outcome of this or it is a general outcome.
We are seeing that the migration towards organized retail or towards stronger players continues, and therefore, you know, every organized player is kind of aggressively pursuing very strong expansion plans. The other piece that I can share from a data point is that we continue to see very good traction amongst new buyers or new customers who are new to Tanishq or new to Titan as well. You know, that indicates that there is a certain migration taking place from family jewelers, et cetera, simply because people want to kind of get towards a more trusted name. On the second piece, where the brand what is the direction of the brand. See, I think the brand has always stood for a certain progressiveness and a certain modernity, yet rooted in tradition.
I can't say whether we are trying to be younger because we are appealing to a fairly large age group, you know, from 25 to 55, I would say. However, what we are seeing that the brand doesn't remain its outlook, and therefore a lot of the communication that you've been seeing in a way reflect, one is the customer is a lot of. On the other hand, you will also see that-
Sorry to interrupt you, sir.
We are continuing to push very strongly on the brand front. Mia and CaratLane continue to target a much younger audience, and both those brands are also doing pretty well. Yes, at an overall level, we are aggressively investing in these brands, and we are seeing the good results. You know, the customer feedback as well as our brand scores.
Understood, sir. I actually missed the last one statement. There was some bit of disturbance, the last statement on Tanishq, you know, and then I could hear, you know, Mia and CaratLane, sub 25, younger, et cetera. If I may request, you know, that one last statement on Tanishq, if you remember, if you could repeat, it'll be helpful, sir.
Yeah. As I said, Tanishq is continuing to push strongly on the progressiveness index. We have a very wide target audience from 25 years to 55 years. Whereas in the case of Mia and CaratLane, they are targeting much younger audiences, and there, too, we are pursuing, you know, good brand investments and brand visibility. Overall, as a portfolio, we are investing strongly in all the brands, including Zoya, if I were to add that.
Fair point. Fair point. Thank you, sir. Ashok, one clarification with you, if I may. You know, the INR 72 crore of ex gratia, if I understood correctly, you know, it's been called out, you know, let's say as an exceptional or a one-off. Basically, there are companies which I cover which has historically had EVA-based model, et cetera. That means you meet a certain target, you know, you get paid a variable accordingly. My basic question is, why is it considered as a something not a normal, you know, and why is it an exceptional or a one-off? Without getting the technical of it, because you have done well, you paid a bonus, it should be a normal line item, right? I'm sorry for my ignorance if I'm missing something here.
No. What, let me give you something in this. One is that principle behind determination of amount is consistent, over at least last decade or even more so, you know, whenever Titan has started. That's consistent. The determination of it only happens after the year ends, and there is a great achievement. That is why you cannot be making provisions for this, et cetera. We never do. We just decide it at the end of the year when there is actually good performance, and based on that determination, the principles which we apply. That is why, from accounting point of view, you find out, you will see that it is under the employee cost. You know, because you want to see also the quarter comparable to whatever you are looking at, that is why we have decided to tell you the amount.
This is not part of the normal variable pay of the employee, either.
It is completely equitable in a democratic manner distributed to everyone.
Okay. I'll take it offline, sir. Thank you. No, it's not material to, you know, to take the time in the call. Thank you, sir. Appreciate it.
Okay. Yeah.
Thank you. The next question is from the line of Kunal Vora from BNP Paribas. Please go ahead.
Yeah. Thanks for the opportunity. First question, Titan has recently acquired a stake in lab-made diamond company. While it's a small investment, can you share your thoughts on lab-made diamonds in the context of Indian market?
Thank you, Kunal, for that question. The last many years, there has been very little conversation that we have heard or seen in the stores relating to lab-grown diamonds. Because the desire for natural diamonds in the Indian middle class is so high that for the next many, many years, given the kind of affluence that's waiting to happen, we're very confident that the power of the natural diamonds will continue to exist, especially given the penetration of the natural diamonds in the Indian households. However, in the U.S. particularly, the share of natural diamonds, household penetration of natural diamonds is very, very high, especially because of the work done by De Beers over the last six or seven decades. On the one hand, the natural diamond penetration is very high.
On the other, the subject of sustainability is at a greater level of consciousness in the Western countries, especially in the U.S. The Gen Z and to some extent the millennials are looking at options, and therefore, the traction of lab-grown diamond jewelry in the U.S. particularly is quite strong. Given our international ambitions on the one hand, and given the fact that sometime in the future, maybe distant, but nevertheless in the future, the Gen Z of India will also start looking for these kind of things. We wanted to dip our feet in the pool and be ready when the time comes. That's the background.
Sure. How large would the contribution be in India? Will it be in single digits now or is it larger?
India.
India.
In India, we can't even perceive it.
Okay. It'll be less than single digits, maybe fraction. Very, very early days. Even in volumes, I would say it would be less than single digits.
No, it might be, it could be less than 0.1% also. Maybe it'll be 0.01%. It'll be like that.
Understood. Okay, it's very, very significant. Second and last question. We've seen some moderation in growth across categories this quarter compared to last. Like, while I understand the Omicron, do you think the pent-up demand played out earlier this year, and because of that, we are seeing some moderation? Also, how would you gauge your performance in April to June quarter, considering that the last two years, it's very small. What's a good way to look at your April to June performance?
Going back to the first part, I think what affects demand is not just the real things which are around you, like Omicron is a real thing. Also what is the news that you are, you know, reading and seeing and listening to all around you in newspaper, through WhatsApp shares, through other kinds of social media posts and all that, which makes you know, feel it's not a great time in general, and that overall depresses demand. That is at the backdrop of our quarter four performance. We've always maintained that we are not a company which is looking so obsessively at every quarter. We are looking at it at a one year and more than one year kind of time horizon, because real value creation in any enterprise happens in that kind of time frame.
From that time frame point of view, the manner in which the country is poised on multiple accounts for growth, especially in the segments where Titan Company plays, and our overall competitive advantage, which we have built over so many years and we have substantially sharpened in the last two years, gives us a lot of confidence about FY 23. Our ambitions for FY 23 were set in that context. Our performance in April, without getting into detail, confirms that confidence and ambition and prepares us really well for the thrust in the next 11 months. I was not completely clear about your second part of the question about
Yeah, second part of the question was that, actually, how are you looking at this April, May, June? Because if I look at the last two years-
Yeah, yeah.
April, May, June were disrupted. I mean, like, these were not really clean numbers.
Our reference is not the FY 21 Q1 or FY 20 Q1. Sorry, FY 22 Q1 or FY 20 Q1. Our reference is the market opportunity there, and to some extent the FY 20 base. Those are the principles that we've used in setting our ambitious target for FY 23, and we are running to that speed.
Okay. Understood. Thanks. That's it from my side.
Thank you.
Thank you. The next question is from the line of Ash Shah from AS Capital. Please go ahead.
Good afternoon, sir. Thank you for taking my question. As the previous participant asked about lab-grown diamonds, I wanted to pick your brains on the same subject. You said that in India it's a very low proportion as compared to natural diamonds. If you start advertising, if you start putting more marketing efforts into it, don't you think that will create a lot of awareness, just the way you mentioned that De Beers did over the past six, seven decades for natural diamond in Western market? They also have a sister concern by the name of Lightbox, which they run in the U.S. Why can't we have it in India also, like a sister concern company dealing into lab-grown diamonds in India?
The reason why De Beers created Lightbox is because the natural diamond penetration in the U.S. is such a high level, and the demand for sustainable materials across categories is rising in that country. The Lightbox rationale is sitting in that. The natural diamond contribution in annual sales, as well as the total penetration in India is so low. This is a very directly middle class aspirational item as it has been shown even in China over the last couple of decades. The opportunity for natural diamond jewelry in India is so large that we have no plans at all to get into that in such a big way. It is the point that you're saying that wouldn't there be a small opportunity that Titan Company can capitalize on? Of course.
At the right time, I'm sure the jewelry division would look at that. In a way, the investment in Great Heights is also to build the overall understanding capability in these areas, so that as and when we believe it is time for us to act, we're able to act more effectively than otherwise.
Focus. Okay. Thank you. Thank you so much, sir. That was my question.
Thank you. The next question is from the line of Jaykumar Doshi from Kotak. Please go ahead.
Hi, thanks for the opportunity. Just a quick bookkeeping question. What was the ratio of net sales to UCP in FY 22? If you can give us some sense.
For the company level, because for every business it is separate.
Company level. Stand-alone jewelry, so excluding CaratLane.
Come again.
Stand-alone jewelry segment.
That is 90%, 89, 90%. That's the number. So we didn't see any variation, Jay, on that. It's almost at the similar level what it was in the previous years.
Over the last three, four years, so net sales to UCP has not changed at all?
Half a percentage here and there, quarter-on-quarter can happen, but nothing much.
Thank you so much. That's it from my side. Thanks. Yes.
Thank you. The next question is from the line of Vaibhav Goyal from SBI Life Insurance. Please go ahead.
Sir, just on the recent news items mentioning some increase in the making charges. Are we having some increase in cost or is it some deliberate effect, something which is done to compensate either on the cost part or some effort in making gold attractive rates? How does this work?
Hi, this is Ajoy here. I don't know where you picked it up from, but we have not taken any increase in making charges in the domestic business at all. I don't know about this. When we do that, I don't think we will see the press not turn on this.
No, no. Basically, sir, this is why I was trying to understand. No worries. Okay. When it is not done, then there's nothing to move ahead. Thank you.
Thank you.
Thank you very much. Thank you.
The next question is from the line of Jay Gandhi from HDFC Securities. Please go ahead.
Yes. Thank you for the opportunity. I just want to ask you, in FY 23, you actually raised INR 3,000 crore ramp over six months, around INR 5,000 crore over the year. The gold on lease hasn't really moved as much. I just want to understand if my reading is correct that, in FY 23, you may be choosing a more expensive route to acquire customers. In other words, the gold on lease or the fresh purchases may be lower versus gold exchange given the inflationary pressure .
Next year, Jay, of course, gold on lease can go up. Now, you know, so there is no deliberate attempt every time when there are opportunities between GOL, spot and GEP- TEP focus will continue. I don't think we are going to dilute that. That's a great customer acquisition tool for us, and that will continue. Beyond that, whether we buy spot or whether we go GOL, that's a continuous team on the economics of that, and that is how we decide. Our preference for GOL has not at all diminished. That's what I can say.
We had a lot of repayments in GOL in the current year because the previous year it went up significantly on account of inventory recall, melting, et cetera, to manage the working capital. Therefore, you're probably seeing this fluctuation year on year. Compare it to maybe two years back, et cetera, it's pretty much comparable.
If I have to just ask you, in FY22 overall, the GOL exchange and spot buying would be what percentage of the sourcing? I'm sorry if I asked this question before.
GOL typically would be around the range of 50% in terms of kgs, and spot buying will be much smaller. The exchange, et cetera, would work out to about 40%. Between exchange and there's outright also we purchase some jewelry directly from vendors that also has a gold component. So GOL is between that 50%-60% range typically. That is what you will see also in the year of FY 22. I don't know if you're asking for FY 22 or
Sorry, FY 22.
Yeah. It's broadly in that range.
Right. Sir, just one last thing if I may squeeze in. I'm probably making this a naive question, but on this hallmarking thing, now if everyone has to hallmark, right? The key issue within the industry was, and this was probably a tailwind for you, is the trust deficit. Now this worked in your favor over the decades. But if everyone hallmarks, the trust deficit gets solved for, then how does this help the organized folks?
Yeah. A very good question, Jay. Now we started, the Tanishq brand started in 1996. It's 26 years now. If you look at the purity of the gold that we buy, the other jeweler's jewelry that we buy from customers, the purity has, even I'm sure if you were to look at yesterday's purity, it is still in the 19.5, 19.75 carats as opposed to 22 that it is supposed to be. In 26 years, the purity stock of customers has not dramatically improved. It has improved, but it has not dramatically improved.
Which means when the hallmarking happens, all the jewelry, I mean that two carats is about 8% in terms of value, and that represents 8% making charge difference that jewelers have to do something about if they were to remain in the same place when it comes to their own margins. Which means if they hallmark, they'll have to raise their prices, and in which case the competitive situation will dramatically change for Tanishq. That is the
That is the only plus that you have. Maybe they may get less competitive. That is the only argument.
Uh.
Ladies and gentlemen, please stay connected. The line of the management got disconnected. Ladies and gentlemen, thank you for patiently holding the line. The management line is reconnected. Thank you, and over to you.
Jay, I didn't get your response. There was a lot of disturbance.
I would say that because they become less competitive to the extent of about 7%-8%, that seems to be the only argument for this, you know, for it to be working for organized, right? I mean, I was actually hoping that you would shut me up by saying you need to buy more Tanishq to understand what the difference is.
Isn't an 8% making charge difference a very important argument?
No, in the sense that, see, anyway, if you look at the gold rates in Tanishq store or any other jeweler, there is a certain premium you charge in gold rates also, which obviously is almost absent in some unorganized folks. Now, you already enjoy a certain premium there.
Possible.
I understand that, you know, they may get less competitive with time, but that's a one-time thing. I mean, people do eventually get over, you know.
Must be a daily. It will not be a one time. For me to continue to offer 22 karat every day when I was offering 20 karats every day earlier. It's a daily thing that for me to operate my business with a certain gross margin that I should get. For me to be viable, I'll have to raise my prices. That's the point.
Yes, absolutely. I'm done here. Thanks. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Pratik Rangnekar from Credit Suisse. Please go ahead.
Yes, hi. Thanks for the opportunity, and just one question from my end. On the jewelry business margins, you did call out the staff cost related one-offs. Even if you maybe adjust for that, it seems like there's a sequential drop in margins. Can you provide some context to that, considering that probably the studded share has also increased versus third quarter, and probably there is an inventory gain that you alluded in diamonds that you alluded to last quarter also? Thanks.
If you exclude the one-offs, the EBIT margin for jewelry in quarter four stands at around 13.1%. I remember mentioning even in the last earnings call that in quarter three we had an exceptionally high benefit on many counts and, you know, therefore those EBIT margins of 13.5%, 14% are not something which we could expect because we were planning to continue to invest back in the brand and in certain other areas, you know, for the business. We had clearly indicated that on a stable run, it is going to be between ten to twelve to thirteen percent, maybe trending closer towards 13%. Having said that, quarter four is the one quarter which had certain costs which we have consciously taken in.
We also wanted freshness in merchandise, so we start the year well. We've invested something a little bit more in IT. We've had a few, you know, needs, for our front line staff, et cetera, to kind of thank them for the exceptional work done over the last couple of years. We have met some of our sales team so that they are all primed and energized. First of all, I don't think the EBIT margin is anything to be worried about. It's quite good and healthy. At the same time, yes, there are some costs which are there in Q4 which may or may not repeat extensively in the remaining quarters.
Got it. Thank you for the clarity.
Thanks.
Thank you. Before we take the next question, reminder to the participants, anyone who wishes to ask a question, may press star and one. The next question is from the line of Shirish Pardeshi from Centrum Capital. Please go ahead.
Yeah. Hi, team. Good evening. Thanks for the opportunity. I'm really sorry, joining the call late, so pardon me for the repetitive questions. Have you said anything quantitatively how the U.S. and GCC market will grow? I mean, I did pick up from the press release saying that you have done one pilot or very soon we are getting it. Maybe in the medium term, next two to three years, how we are going to develop or one should look at this business.
Actually, Shirish, if you can wait just for one week, next Friday is our investor conference, and
Sure.
I will be talking about this to some extent in detail at that time.
Sure, [a]. My second question is on the eyewear. I mean, last 10 quarters, if I put numbers together, our estimates versus the delivery, there is a lot of volatility. I mean, last con call also I asked this question. When do we see a steady state growth and margin delivery for this business? I mean, is it that another two quarters we'll have to wait or maybe four quarters we'll have to wait?
Actually, if you exclude the quarter one of FY 22 as well as the quarter one of FY 21, you would see almost three plus three , six steady quarters. PBT margin ranging between, I think, 15%-20%. Okay. Quarter.
Yeah.
Quarter four this year, as I said, sale was affected because of Omicron in the month of January. In the month of March, we needed to make certain correction to clean up some of our channels, especially the distribution channel. Apart from the fact that we had some one-off expenses, like, it was explained by Ashok, there was a large expenditure of what we do once in two years. We did in this case after three years for a business associate meet. If you actually adjust for all these things, quarter four PBT, EBIT could have been in the ballpark of INR 15-18 crore. Okay? Just to sort of give you a sense of. It was not significantly different than the last three plus three, six quarter.
We are not seeing that as a really an aberration. It is a bit of a correction that we did. If you look at just what happened in the month of April, it just reinforces that we are just on the right track.
Sure, sure. My next question to Ashok ji. In FY 22, could you quantify what is the saving in terms of numbers we got on war on Waste?
The War on Waste program, which was run last year where we were doing quantification and we had at that point of time said that there are certain items which got induced because of the environment, you know, like travel, power, et cetera, et cetera. There were certain things which were ingrained into our business processes which are sustained now. They have become part of thing, and now we are not calling them out separately. The natural savings have almost disappeared because you see all the activity and velocity of travel in quarter four particularly, and we also took that opportunity to travel a lot and meet people. The other process part of it are sustaining, and we are not now anymore calling them out.
That's really helpful, Ashok. One follow-up on here. We have done the hedging, and now I'm sure, two quarters is gone in. In related to this hedging, would you think there is some more savings which can extract because of the quantum and the demand situation?
Hedging change, which we did, was basically to remove volatility because we were on cash flow, and cash flows were becoming unpredictable because of the COVID-induced lockdowns, etc. We moved to fair value of inventory hedging because inventory and gold is far more certain and far more predictable. That is what is giving result that now you don't see any kind of volatility we are pointing out in our PNL because of gold hedging. Hedging is just to insulate us from price risk. Idea is not to make money out of that.
Okay, Ashok, my last question pertaining to this VRS and the ex-gratia charge which has come. This is fully charged for FY 22, or is there anything which will flow through in FY 23?
FY 22, everything has been taken care of. All the future liability on account of VRS have already been accounted for, so there is no further charge coming in either quarter one or FY 23.
Thank you. Thank you, Ashok and the team, and all the best to you.
Thank you.
Thank you. The next question is from the line of Ashish Kanodia from Ambit Capital. Please go ahead.
Yeah. Hi, sir. The first question is in terms of inventory gain on diamonds. Last time you called out that there was one-off and, you know, there was some flow-through in 4Q as well. Can you please quantify what was the impact of that, inventory gain on diamond? And the second question is on ingot sales. Again, in 4Q there was some ingot sales of around INR 375 crore. What led to that?
Hi. Ajoy here. The total benefit on account of diamond-related price increases and inventory gains in the second half of the year is about INR 190 crores in the previous fiscal. Okay, so it's split between quarter three and quarter four. It was, I think, about INR 60-odd crores or something like that in quarter three and some balance in quarter four. In terms of gold sales, we try to see some amount of optimization on gold on lease. You know, it was a question which came earlier on, and we also look at our inventory position and cash flows. We do some amount of optimization. Based on, of course, how much exchange gold has come, we try to only sell out of the exchange gold, so that you can, you know, try and make some optimization.
That happens from quarter-to-quarter basis, an internal conversation on how to optimize.
Sure, sir. That's helpful. Last question is, you know, I think for a couple of quarters we have been trying new initiative in the southern markets and in some of the Bharat markets as well. In that context, you know, our channel check suggests that you're also trying to implement maybe, you know, pan-India similar gold price, right? From a gross margin perspective or from a EBIT margin perspective on the jewelry business, you know, are we seeing some impact from that perspective as well that, you know, when you maybe focus more on southern markets or in some of the Bharat markets, there is higher discounting or higher marketing and because of which, you know, the margins are kind of taking some hit?
Yeah. Let's put it this way, the geographic mix has an impact on the gross margin. You are right that as we increase our contribution from southern markets, there is some amount of dilution in the gross margin of the business. On Bharat markets, we don't see that much of an impact on gross margin. Yes, marketing investments. Yeah, but the marketing investment is not that material when you look at the overall NSV of the jewelry business. It may be to the extent of 0.1%, 0.2% here and there. As we had mentioned even in the previous earnings call and we continue to mention that there is intense competitive intensity in the jewelry market because all organized players are seeking to expand. There is gold rate-related activities.
While we haven't taken any call on whether we will have a single gold rate or no, but we are being competitive in different markets, and we are certainly going for aggressive market share gain. Therefore, the investments that we continue to make, either in the form of gold rate or offers or marketing spends, or even the kind of product mix that we are willing to supply as we try to maximize the opportunity in every geography, will, in a way, therefore have a slight dilutive effect on the margin. But the overall operating leverage because of the growth in the top line that we get will more than offset it. So to that extent, these two will keep kind of balancing each other out, and therefore the guidance that
not guidance, the indication that we had given, that we will operate within this 12%-13%, ending close to 13%. Yeah.
Sure, sir.
Operating leverage vis-à-vis other initiatives that we are planning to invest to continue growth.
Sure. Thank you so much. That's all from my side.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. C.K. Venkataraman for closing comments.
Thank you very much, everyone on the call. A very, very exciting quarter and a whole new exciting year ahead of us. As always, all of you asking the right questions, probing questions to make us reflect on everything we do and continuously strive for an improving financial performance. Thank you, and see you next week, most of you.
Thank you. On behalf of Titan Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.