Ladies and gentlemen, good day and welcome to the Titan Company Limited Q4 FY 2023 earnings conference call. 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 then 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, Mr. Venkataraman.
Thank you very much. Good evening to everyone on the call. It was a very satisfying quarter, Q4 FY 2023. We passed many milestones through the quarter. INR 30,000 crore milestone for jewellery, INR 5,000 crore for watches and wearables, INR 1,000 crores for eyecare, INR 500 crores for international business, INR 200 crores for the perfumes business. All in all, a very, very satisfying quarter. All the mature businesses continuing to grow at a very satisfactory and ambitious rate. All the emerging businesses growing at a scorching pace, including the women's bags and the Taneira business establishing themselves strongly. Internationally, becoming very prominent in the NRI space, in the GCC and in the United States.
All in all, a fantastic quarter, I would like to thank all the employees of Titan Company, TEAL, CaratLane, and all other subsidiaries, as well as all our partners in the manufacturing side, their employees. All the partners in the retail and distribution side and their employees, all other partners who work in some way or the other in support of Titan Company and its subsidiaries for continuing to deliver exceptional standards in customer experience, innovation, operational excellence, and through all that, to deliver great sales and financial growth, profit growth. Of course, my thanks to all of you on the call. As always, challenging us, wishing us well, encouraging us, and asking the sharp questions that you ask all the time. I am.
My part, in this part of the call is concluding, and we can move into the Q&A.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star 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. Reminder to the participants, anyone who wishes to ask a question may press star one at this time. First question is from the line of Avi Mehta from Macquarie. Please go ahead.
Am I audible?
Yes, Avi.
Yeah. Hi, sir. Sir, My first question was on the jewelry side. You know, has the moderation seen in customer demand in March, has that kind of... Because of the sharp gold price rise, has that waned off in April? Could you give us some sense on how the growth trends are behaving?
Hi, Avi. Ajoy here. You're right, March saw a softening, and it continued into the first half of April. I think gold price volatility has usually kept many people on the fence. As soon as the festive period started and the offers started for Akshaya Tritiya, we saw a lot of people come into the market, and thereafter it was very good. I think the volatility piece in demand linked to gold price volatility continues. When the festive season and wedding season and let's say there's opportunities and occasions to buy, it's very good. If there is some nervousness, it tends to fall. Overall, I would say it was a very good Akshaya Tritiya for us. It's in line with what we think, you know, what our plans are for the year.
Those would be, sir, would you be able to share some plans for the year? What are your thoughts? Any numbers over there?
I don't think we can share numbers, but you guys are well aware of our longer term plan. In some ways our annual plans are pegged to the long-term plan that we have set out during the Investor Day. In that context, therefore, we are online with that.
Perfect. That's perfect. The other bit, sir, on, you know, there is this change in the franchisee rates, which was carried out during the quarter. If you could give us some sense on what exactly was it, and give us an idea of what is the impact we should kind of expect on margins and things?
Actually this is a very operational matter. You know, terms of trade, between principal and the franchisees are typically to ensure healthy returns and good profitability for the franchisee.
Mm-hmm.
Just so that all of us are clear, when it comes to the jewelry and Tanishq franchisee, we have best in class returns. In fact, people make exceptionally good profits and returns on investment.
So much so that most of the franchisees want the second, third, fourth, fifth store, and we are unable to fulfill their, you know, desire because we have. Even they are happy to take the next store 100 km away or 200 km away in another city.
10,000 km away.
Yeah, even international.
20,000 km.
Yeah. We've actually had, you know, huge requests from all our franchisee communities to give higher things. Just to share with you best-in-class returns across all forms of retail-
Yeah.
-that might be there, and I won't be surprised if it's across the world. This old structure was about 15 years old, and the nature, scale, product mix of the business has significantly changed in the last 15 years. The slabs have changed, everything has changed. We needed to align and in a way, you know, update it. The other important piece is the product mix, which is profitable, which works well for the company as well as works well for the franchisees, needs to be aligned in the same way, so that all of us are firing in the same direction. That is something which we wanted to structurally change. We also wanted to introduce new categories of complexities of products because we are seeing that opportunity to, in a way, gain in, you know, different complexities of gold.
Many structural changes, all driven towards aligning growth and profitable growth for both the associate and us. Also during the last couple of years, the division has invested significantly in both inventory as well as gold rates to deliver terrific growth. This investment has come significantly from the organization as well. In a way, this was a kind of a restructuring. Absolutely very limited impact in terms of profitability to us. In fact, many franchises have gained and some may have lost, but actually we don't know because the mix they will sell-
Mm-hmm.
In the current year or in the next year will determine the exact gains or losses. In our estimate, many of them will actually gain. There is no significant impact on the company in terms of share, you know, margins or whatever.
Okay.
Nothing much. It's an operational piece actually.
If I may, sir, summarize or paraphrase, the way it is, this is to modify the incentives to move product mix upwards and should not result in any impact to the franchisee profitability. Would that be a fair statement to make, sir?
It's difficult to conclude because we have some 200 odd franchises in the system. Some may lose depending on what mix they sell.
Mm-hmm.
many others may gain.
Okay.
It's very difficult to conclude it in one line. In any case, you know, we've been a very fair partner, so even if somebody actually loses, we will invest a lot more in ensuring growth. That's not something we worry about.
Got it, sir. Sir, with your permission, just one last bit on the watch side. you know, we saw very strong.
Yeah.
Margins were below the range that we had, you know, kind of were looking at of 13%-14%. Would you revisit this target or could you kind of share us how do you see this internally?
The strong revenue growth was also because of a lot of investments, et cetera.
Yes.
There were some, actuarial, you know, calculations which came and hit our, overall profit. We are quite satisfied with the margin, and it is in line with what I have indicated in previous, investor calls also, that margin for, the watches business in this year, for example, is likely to be in the 12%-13%. It is in that range.
Okay. Okay. That's all from my side. Thank you very much, sir, I wish you luck.
Thank you. The next question is from the line of Nitin Jain from Fairview Investment. Please go ahead.
Hello? Yeah. Am I audible?
Yeah, Nitin.
Yeah. Thank you for the opportunity. My first question is on the jewelry business. Some of your national competitors, like Kalyan, Malabar, they have moved to, you know, one nation, one gold price policy. Does that lead to any change in your, in the gold rate premium that Tanishq has been charging historically? What would be the impact on EBIT margins going forward? My next question is on the dividend payout. While the quantum has increased this year, the payout ratio has actually declined. Any comments on that, please? Thank you.
On the one nation, one gold rate, actually this is now a 16-month-old story. Malabar had started it around Diwali the year before last in FY 2022. Thereafter many players, local players, maybe not one, but lowest gold rate offering. Actually for the customer, it's been the lowest gold rate offering is that is more relevant. The one India, one gold rate is more a, let's say, broader statement. Kalyan also responded in many markets in that way and has eventually figured out that he wants to stick to one because the Kerala Jewellers Association had some kind of conversation and for some reason their gold rates were much lower than the rest of the market. We have chosen not to go down that path. We have instead looked at what is relevant, competitors in different markets.
Historically, we have seen there's a wide dispersion of gold rates across the country. Local jewelry associations actually declare the gold rate and everybody plays according to that. Therefore, we have chosen to optimize along those routes. Some of those are getting rationalized over a period of time, we are in a way ensuring that we remain competitive market by market. Consequently, as mentioned in previous investor call, we have therefore seen a gradual reduction in the gold rate markup side of the gold jewelry margin. We've been managing it through product mix, through making charges and through other initiatives to try and ensure that we still continue to live up to good GCs and therefore good EBIT margins. That process is on. I won't be able to comment much on GCs further.
We have already taken fair amounts of corrections in the past, yet been able to deliver the EBIT margin that we've been committing to, and we still stay by that. Irrespective of the competitive intensity, we are expecting to sustain our EBIT margin. We are not too worried about any further dilution, even if there is here and there mix related and product engineering related and many other operating leverage related initiatives are in place to ensure that we continue to deliver healthy margins in this business.
Yeah. Ashok Sonthalia here. Our dividend policy suggests that we will maintain a dividend payout between a band of 25%- 40%. This year dividend declaration, while it is substantially increased over last two years, is about 26.6% of the profits margin. Board considers every aspect of, you know, our requirement in growth and what kind of investment plans we have and what is the cash balance on the balance sheet, et cetera, and then accordingly decide a number which is within the band. It's a decision keeping all these consideration in mind.
Okay, thank you. That's all from my side.
Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi. Good evening, team. My question is for Ajoy. Ajoy, congrats, this quarter you've done 19% same-store sales growth in the jewelry division. My question is that a large part of this 19% is coming because there is a big inflation in the gold price. If, let's say, the gold price going ahead were to stabilize and at some point of time the YoY gold price inflation, if it comes close to zero, in that kind of a scenario, what would be a sort of normal or stereotypical target SSSG that you would sort of tend to have in a flat gold price scenario? That's my first question.
Hi, Percy. we've had this conversation couple of times, once in person and couple of times on the call. We would still like to suggest that for us, volume is not linked to grammage and therefore gold price inflation is equal to... The way we look at it is number of customers and the average ticket size. Just because there's a 19% like-to-like growth, and even if there was technically a very high gold price related inflation, it doesn't translate it exactly that way. Just to give you a sense, if I look at 19% same-store growth in value, we have had an overall buyer growth of around close to 16%. On same store, that number would be closer to maybe 10%-11%. Okay?
Typically, if gold price was not to inflate, there's nothing to say that we can't continue to gain number of customers, because we continue to gain a significant number of new customers. Even in quarter four, our new to repeat is 50/50. We've grown pretty equally in both segments. Gold price inflation may be helping in ticket size, but it's not necessarily so. People also enrich in terms of product mix. As long as we are continuing to get more customers, and there's customer growth for every store, especially same-store growth, and then there's a ticket size increase which may happen due to product mix enrichment, not just only because of grammage, but the kind of products they buy, studded ratios and, you know, more complex products, et cetera. We are not worried about, you know, this.
Therefore, same-store growth, it is our endeavor we should continue to deliver double-digit same-store growth. That's how every store and business can really prosper. We are targeting certainly much more than this double-digit or whatever. We are targeting good double-digit growth going forward for same stores.
Right. My next question.
Gold price for us, huh? Just to clarify.
Got it. Got it.
Yeah.
My next question is on the retail area addition in jewelry. The square feet, what percentage of addition are you planning annually for FY 2024 and FY 2025?
Okay, I don't have a square footage number, but I can just share with you that, we've added... If I just look at quarter four, we've added 11 new stores, but we have also significantly expanded existing 10 stores. When I say significant expansion of these 10 stores, it is either a 25%-30% increase in the retail area or on an absolute level, at least a 1,500-2,000 sq ft. Effectively, if I look at both these figures together, we seem to have added a lot more square footage than would be evident from sheer number of stores. We have quite a few stores, even in the current year, where we are looking at significant retail expansion. you know, I think another 15-20 stores will see significant retail expansion.
In addition to that, w e expect to certainly add 40+ new stores. The opportunity is not the limit. For us here, our ability to execute, find the right places, ensuring they are built to suit and everything is, you know, working well. The opportunity is much larger than that, but typically we have set out, you know, around 40 stores. The opportunity space over the next two years, if you ask me, could be 100 new stores as well. A lot depends on, you know, how much we are able to execute. Historically, we seem to have been able to execute 30-40 in a year. In addition to that, we will do this retail expansion program as well, which we've commenced strongly from the last 12 months. I hope that answers. I don't have a square footage percentage.
Yeah, that's very useful, Ajoy. Last question on Eyewear. Margins, even if I adjust for that INR 8 crore one time, margins are sort of in the mid single digits. I thought we had this model now very well established, where we would be doing low to mid-teens kind of EBITDA margin in Eyewear. What really went wrong this quarter?
Hi, Percy. This is Saumen. Actually, if you look at the last six, seven quarters, you would have realized that what we said mid-teens, I think we have held on to this more or less.
Yeah.
Exception was last year, quarter four. In a way similar case is this year, quarter four. Just to spend a minute on the quarter four, we had a very good month of January, in fact, the second-best in our history. The second half of quarter four slowed down, it in a way sort of affected sale. Few other things also happened simultaneously. We needed to clean up a few things. For example, in the last two, three years, many of our franchise stores accumulated stock, especially lenses, which are kind of supposed to be used, but discolored. We had to take back. Then in our distribution system also, we needed to make sure that there isn't any, you know, unnecessary stock pile up because we are also making a change in our product portfolio.
We needed to give a month gap really to sort of downstock a bit so that new portfolio of product can go to the trade channel with a restructured margin, so that we actually have a greater level of penetration. All that has caused a sale compression to a level of over 70% of what we have budgeted. That's one side of the story. The other side is DC actually held. On the cost front, there are a few annualized figures came in, whether it is employee related actuarial that, you know, was mentioned once. We also opened I think 18, 19 company stores which were not budgeted earlier. As a result, both on the rent front in quarter two and mostly in quarter three and quarter four.
As a result, both in rent as well as employee costs, you would have seen the impact of it. Obviously, we'll gain it from this addition significantly in the coming year, both in the margin side and otherwise. apart from that, we had to shut down about 22 stores in quarter four, which are not really, you know, working out, and few stores that happened in the end of quarter three. All put together, there are a few one-time exceptional costs that has come. This apart, we also had to, you know, we decided that it is appropriate to sort of share some of our, you know, wealth that we have created with our franchising, who lived with us during the most difficult times of last year. That is the INR 8 crore that we have spent.
All put together, there is a one-time impact in the PBT. If I adjust for all these things, and if I look at what we did to make FY 2024 to have a great clean beginning, I think thankfully, we are seeing it in the month of April. We had our best month in our history.
Okay, okay. That's all from me. Thanks and all the best.
Thank you. The next question is from the line of Jaykumar Doshi from Kotak. Please go ahead.
Yeah. Hi. Thanks for the opportunity. My first question is on margins. You know, even adjusted for, you know, one-offs that you had in the first, half of this year, you've ended the year with a little over 13% jewellery EBIT margin, for standalone business. Whatever I gathered from the earlier response is that, gold rate is not a concern anymore. I assume that there is no further sort of, margin pressure. Given that backdrop, are you confident of maintaining margins at similar levels in FY 2024, assuming the growth shapes up on your expected lines?
Hi, Jay. See, first of all, I think these margins vary by quarter based on the mix. Quarter four-
I was referring to full year, sir. Sorry. My, my bad. I was referring to FY 2024 versus FY 2023.
You're referring to full year FY 2023?
Yes, sir.
Right. That won't be there next year. Also, there is a certain element of stock gains on account of diamond inventory, which is also sitting in this. This 13.7 has the benefit of almost about a percentage between these two elements, both of which we don't anticipate to see in the next year. In a way, corrected or normalized, which adjusted whichever way you say, it will come between that 12.5%-13%, which we've been talking about.
We expect to sustain these given competitive intensity, given the growth opportunities in different categories and markets in which we are growing.
That's helpful. Thank you. One more, just a follow-up on your earlier comment. The demand trend over the past few days, does it give you confidence that the softness that you had called out in the quarter end business update is now behind us and, hopefully that, you know, this trajectory should, healthy growth should continue going forward?
Yeah. I mean, if I think about it, volatility is here to stay. We've seen it now over the last three or four quarters. It's almost, you know, when the going is good, it's really good when there is no reason, people kind of hold back. If gold prices spike, there is some degree of nervousness, et cetera. We've kind of learned to play that game, and we think we are broadly on course for what we see. It's difficult to give you an accurate view because as I said, first half of April was dull, but second half was fantastic. May and June promises to be good because there's a lot of good wedding dates. Yeah, we are hopeful that, you know, we should be able to deliver to the plans we've laid out, volatility notwithstanding.
Understood. Thank you so much, and wish you the very best for FY 2024.
Thank you.
Thank you. The next question is from the line of Manoj Menon from ICICI Securities. Please go ahead.
Hi, team. you know, for some of the questions which I have, I got some part answers, so allow me to because this is a repeat actually. I guess the first thing is on, you know, the 15% odd of buyer growth, 10% customer growth at the same-store level. Could you help us to have some time series understanding of these numbers, let's say over the last decade?
Time series over the last decade?
Yeah. What I mean is this 10% would be, would you call it in the top quartile, bottom quartile, mid quartile in terms of your own historical customer growth numbers?
Actually, on the call, Manoj, even I don't have the for the last decade like that. What we can, you know, we'll come back.
Yeah.
We'll come back to you on that.
Yeah. Also, Manoj, the other piece is this is an average figure across so many stores, okay?
Right. Right.
If you look at it, newer stores will have much better same-store growths until they stabilize. If you ask me a 10% customer growth for a mature store, I would be very happy. I mean, whether top quartile or no, I don't know. Which decile, which quartile, I don't know. Generally we'll be happy. You've made us think. We'll think about the data and come back.
Fair enough. Sir, the only reason I ask because, you know, based on historical understanding, let's say your retention power is very, very high of the customer. You know, it essentially means that when you've recruited new consumer of this magnitude, you know, would it be fair to say that, you know, the customers or so it actually affects my DC very positively. We'll have a conversation separately. Secondly, on the gold price premium bit, you know, we've also done some primary research on it. Look, I think is it fair to say that with all the discussions about, you know, let's say you having a nuanced approach, competition, playing the price card, et cetera, is it fair to say that there is already an equilibrium which exists?
End of the day, your 20% growth is, you know, with this, let's say, quote-unquote, headwind.
Yeah. I mean, you could say that because our growth, the competitive intensity on gold rate and pricing has been pretty intense over the last 15, 20, 15 months-18 months. To some extent you can say there is equilibrium. Whether it will intensify further, don't know, can't say. By and large, no. Just wanted to clarify on the previous one. When we talk about customer growth or buyer growth of 10%, it is not all are not new customers. Many of them will be repeats and many will be new. The ratio will vary, yeah.
We're not acquiring 10%, on the total base.
Yeah.
On the new base, we may be acquiring 10% more.
Yeah. I mean, new to repeat growths are the same in the sense we are still getting 50% of our contribution on the overall chain from new customers.
Correct.
50% from repeat. That percentage will vary based on older store and newer store and all that, is what Venkat clarified.
Fair enough. Secondly, on the recycled gold or the gold exchanges, has been stable at around 40% for a while. You know, I do recall you have dialed up or rather you have used this to dial up, you know, let's say to counter the, you know, building customer acquisition as well, making such product, et cetera. The context what I'm trying to understand is, do you think directionally this should go to 50 over the next few years? Do you think it can? Which direction I should take it, stable, up, down?
It's been pretty stable, for us, you know, around between 30%-33% has been the contribution of gold exchange, which is non-Tanishq gold, and about 9%-10% is the Tanishq exchanged. We are actually seeing a correlation between exchange gold and wedding, and we are trying to use that lever to further, you know, increase the excitement around wedding. Therefore, we think it should go up, whether it is gonna go up dramatically, we don't know. Certainly we think it'll be greater.
Fair enough.
The more we are able to increase the share of the gold exchange program, the GEP, actually it will push the growth of the brand because the size of the exchange, the extent of upselling that happens with when people discover the value of Tanishq exchange itself, as well as the products and all that, the upsell potential is also high.
There is a good correlation between the increase in the share of exchange and the growth of the brand in total. We will continue to push that, but it's a very complex final thing to, you know, actually happen, and therefore, the result we know only when we actually see it.
Understood. The only reason I ask because, you know, at this rate of 40%, because there is a cost aspect also there because you are buying and selling gold at the same price versus, selling on cash, which will help you get that extra bit of, you know, let's say brand premium. Okay. The third, and if I may, just one quick one. Sir, you mentioned about, the, you know, let's say focusing again or even more doubling down on the wedding part of the business. Where do you put the inventory at the store at this point in general? Is it optimal or do you think there is a requirement to, you know, let's say, work with a slightly lesser turn or higher inventory for you to drive this, wedding business?
You're right. Wedding business requires us more inventory, especially because it is so regional and, you know, optimizing that doesn't become easy. The more we go deeper, which we are already quite deep in many markets. In general, given what is required, it is turn dilutive. We believe that we have not yet reached the optimal. Wedding hardly contributes to around 20% of our business. There is scope and we are in fact doing it selectively in select communities and select markets and seeing the result of that and then progressing to the next set of communities and markets. Therefore we are phasing it and learning along the way. Definitely it is, it requires a little bit more inventory, whichever community or market we choose to go deeper in.
Fair enough, sir. Thank you. Over to you.
Thanks.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi, good evening, thanks for the opportunity. Sir, couple of questions, both pertains to jewelry. First, could you please provide us revenue share of wedding jewelry for fiscal 2023? Considering the backlog of weddings that occurred during FY 2023, what is your outlook for the wedding calendar for FY 2024?
Okay. For the year FY 2023, weddings have been actually a relative underperformer. It's around 19% of the total jewelry that we have sold compared to 20% last year. Actually 20% has been a steady. This is largely linked to quarter one of FY 2023, not really firing as well for wedding, and we had to pivot towards other product mix. In the second half wedding-
Okay. Would we have lost market share in wedding jewelry this year?
I'm not so sure because we've gained overall market share and therefore internal contributions may not give you a better picture. In fact, I would believe we may have either sustained or marginally gained because in certain markets we have seen good growth and in those markets we get actually decent wedding share. I wouldn't say we've lost share, but I would say the scope to grow much faster is there. Opportunity in FY 2024, certainly we've taken a much more aggressive growth target on wedding, not just for the this year, but over the next three, four years. Therefore, we hope to gain further. We are, as I said, investing in select markets and select communities to dial it up even further, including exchange, et cetera, besides inventory.
Sure.
Right now we would say this year was a percentage lower in contribution. We would like it to be a couple of percentage points higher, in the coming year.
Sir, how's the wedding calendar looking for FY 2024?
So far, so good. Quarter one is certainly looking good. H2 is always reasonably good because it has also a lot of NRI weddings, a lot of metro weddings, etc. So far the calendar is looking good and quarter one is always a little bit of a googly because it's very heavily dependent on these dates specifically because a lot of rural wedding, et cetera, is there.
Sure. Second and last question. Sir, if you can share some insight of the profile of the new customers we are recruiting, as in which region it will be highest or in which category they normally get recruited. Is it wedding, studded or low-end diamonds?
Regionally, I don't think I can share because a lot depends on the expansion across different regions. The newer stores also gives us a lot of new customers. Typically, we tend to get new customers in the sub INR 50,000 price band or sub INR 1 lakh because gold prices have gone up. Secondly, we get a lot of new customers in gold because we are gaining share from, you know, other players and typically they could be buying gold from there and the studded ratio is very low for other players. Of late we are also seeing a lot of new customer growth in the sub INR 50,000 both for Tanishq, for Mia and for CaratLane because there's an emergence of a younger audience who's buying into fine jewelry.
That is more in the last maybe one year it's a little more prominent. Typically, yes, it's price band and more gold if you were to ask me. Wedding, new wedding buyers are rare, though not entirely absent. The median is sitting in, you know, in the daily wear category.
Got it. Thank you. Thanks a lot.
Thank you. The next question is from the line of Amit Sachdeva from HSBC. Please go ahead.
Hi, good evening. Thank you so much for taking my question. My question is for Ajoy. I see that bullion sales is, in this quarter, was quite large. Nearly 50% of the full year bullion sales. Full year bullion sales is more than twice that of FY 2022. It seems like it's a bit of a... Is it like an assortment intensity rising or refresh rate is rising? My question is whether there's a part of old inventory being melted or excess gold being sold, whether the jewelry margin, is it accounts for all that value loss that may have happened if you have melted the jewelry back. Are you doing it increasingly more as you maybe refresh rate is higher?
Can you sort of describe what is the strategic intent here and how we should read it in terms of, you know, growth acceleration or inventory being refreshed and things like that? Or is there something I'm reading too much into it?
Yeah. Amit, good question. I'll clarify. There are two observations which might help you follow it. This is the year where we have started importing CEPA gold. There's a, you know, agreement between UAE and India, there's a 1% custom duty benefit for taking in CEPA gold. There's a quota, and you have to apply. In the current year, and most of it in the last four, five months, we imported a substantial quantum of CEPA gold, okay?
Okay.
In several tons. That gold is imported on spot basis, and then there is some contango, et cetera. Consequently, our. To manage the capital employed, we have been now following a strategy of ensuring that we try to maintain GOL as a proportion of the overall inventory at a certain percentage. Because a lot of this got, kind of came in as a lump towards the last four, five months, we had to do a little bit more of bullion sale to manage the capital employed. Yeah. It's nothing to do with the previous set of doubts or thoughts you had. We also did a little bit of proactive spot buying in quarter three, where suddenly CAD deficit, et cetera, was, you know, beginning to worry and we thought, "Let's protect ourselves from any gold related restrictions." That also.
Mm-hmm.
maybe added a little bit. On the broader point that you mentioned that with refresh rates changing, et cetera, we typically tend to look at melting and provision, you know, as two line items, and we try to relate that as a percentage to the NSV. It has been fairly stable over the last four or five years and, you know, it's not significantly changing upward or downward. The melting as a percentage of the total and the potential value loss, et cetera, is broadly consistent. Nothing much to worry about, and I don't think it's something which is gonna affect our margins for sure.
Got it. Thanks so much, Ajoy, for clarifying this. Very helpful. I was just wondering whether there's some bigger intent here which is not visible in channel, but it might have implications. Thank you so much for that. My second quick question, if I may ask about, you know, which you have obviously clarified is the terms of trade issue between L2, L3s and things. Is this larger intent is to sort of since you have to make the gold price competitive, it is sort of an effort to, you know, pass it along to all the channel partners and everybody mitigate costs and sort of navigate it all. What is the genesis of it? Or it is like they are just, you know, value capture is too high since the gold price is high, that it needs to be balanced out.
In that case, are you investing the gains back into the business for growth? Or what is the real intent here? Just wanted to understand.
Again, two comments. One is that we have invested ahead in terms of both gold rate and inventory-
Mm-hmm.
even before we made these changes.
Sure.
Our investments over the last couple of years has been high and will continue to be high. We are all investing for growth, even not trying to recover. The second piece is we are actually trying to moderate the product mix in a different way to manage the gross margin. Let's say if you're losing out on gold rate, the best way to gain is by being able to give a richer mix or a more higher complexity mix, et cetera.
Sure.
Do some product engineering. If we have to do that, then we have to ensure that both us as well as the partners are aligned in the same direction. There's no point in my supplying it if that doesn't sell. If the incentives are better or the margins are better on higher complexity or medium complexity products, then we are aligned in the same direction. You know? That will give better margin to us and better margin to them as well. Therefore, this entire exercise was aligning us and them the same direction going forward. We are seeing a lot of work going on in product mix. As I said, it was a 15-year-old COT. At that time, we didn't have many of the products at all that we are today selling.
Got it. Got it.
Actually, it's nothing about trying to share and capture value. It is purely about aligning towards a more profitable future.
Understood. Just very quickly, Ajoy, if I may ask about the international expansion piece. It seems that, you know, domestic is 21, but overall is 23, which means international is already adding 2%, roughly growth rate to the overall mix. It seems to me that international is going pretty well. Can you share the number of stores you plan to open this year and whether it's L2 or L3 format is gaining momentum there as well, or it's largely L2 and your own stores? Can you give us some color on international piece, the ambition for this year?
Hi, Amit, this is Denny here. You're right, that international is going pretty well. Wherever we've been able to open stores, the response has been quite overwhelming and very, very positive. We are up to seven stores now, six in the UAE and one open in the U.S. since December. In the coming year, we are looking to add quite a few more. We are planning to expand to roughly around 25 stores cumulative by the end of FY 2024.
Mm-hmm.
A large number of them across the GCC region, in UAE as well as other countries around Qatar, Bahrain, Oman are all possibilities. Also, expanding our footprint across the U.S. That is the plan.
Got it. Is L2 or L3, which is the kind of format you're essentially using or is this like your own capital?
We have all three formats. We started out with L1 in the UAE, essentially for us to sort of, you know, get our hands dirty and understand how the business works, because we're doing this for the first time in an international geography. We also have L2 in the U.S., and now we are opening some L3 as partners are gaining greater confidence. Like Venkat said earlier on the call, a lot of our partners, our franchisees in India are asking for the chance to be given to them to operate a store in international markets. That. We are also now finding a lot of local partners, meaning people who were not in any way connected with Tanishq or Titan earlier, who are also coming forward on the strength of what they have seen.
We recently announced a tie-up with Sharaf Group, who runs the Sharaf DG chain of stores in the UAE. They have come forward as a partner to work with us as franchisees for stores that will be Tanishq branded. They will be like any other partner operating a store for us.
Got it. Well, that's very, very useful. Thank you so much for sharing this. I am sure the solitaire strategy will emerge eventually for non-Indian population as well. Is there a plan towards that end as well, that you when you go to U.S. market, there's a large, very different kind of mix as well that exists very high margin? It's still an Indian diaspora and that's what the reason of being there is. Is the customer mix and product mix going to be very different or is very different already?
At this point it is, almost, 98% Indian. You know, we get a lot of South Asians, in our stores in, GCC.
Mm-hmm.
Predominantly Indian, and that's the beachhead that we are attempting to establish. Like you said, obviously the market in many of these geographies for the non-Indian consumer is much larger, much bigger, and hopefully much more profitable, and therefore we would certainly wanna go after that. At this point in time, the primary focus and objective is to develop a very, very strong, competitive and, you know, high quality offerings for Indian consumers, give them a really superlative experience. Just to give you an indication, in the Titan Eye+ format that we've launched in Dubai, we're getting up to 25%-30% non-Indian customers.
That's because we're present in a mall location and certainly the products that we have to offer and the strength of a value offering from India seems to be working very, very well. Early indications are very, very positive.
Amit, Venkat here.
Venkat, hi.
The other opportunity is that all the Indians that we are currently acquiring as customers also have a pretty decent non-Indian jewelry that they buy, not just the Indian jewelry that they buy to wear with Indian clothes, Indian occasions and all that. For example, brands like Signet and Kay and Jared, and why not even Tiffany, and brands like that. We want to become a one-stop shop for all Indians. Apart from the point that Denny made about non-Indians, even among Indians. With the product lines that we are currently going with from Tanishq, Mia and Zoya and all that, satisfy substantially the Indian needs of the Indian consumers.
The non-Indian needs of the Indian consumers is also a pretty decent opportunity, and Denny and team are working to understand that better, create product lines to cater to those needs, and therefore maximize the share of wallet, and the total share of jewelry purchase as well.
Great, Venkat. Thank you so much and all the best. That's all from me. Thanks a lot.
Thank you. One last point on, you know, many people have spoken, asked questions relating to the terms of trade change. I would just request all of you to sort of step back on and see the subject as which Ajoy said, but I'm just saying it again to reinforce it. Sorry. It's an operating aspect of the business. Frankly, the questions are sort of ending up making it look like a strategic or a business model kind of subject, which it is not. It is an operating aspect. As long as we continue to deliver best-in-class returns to our partners, which even after this, we are delivering, I would wager that in the Indian retail industry, Tanishq would deliver best-in-class even after this.
Therefore it is just an operating matter and not, you know, does not merit the kind of level of conversation perhaps it is going into.
Great. Thank you, Venkat. Thanks a lot.
Thank you. The next question is from the line of Latika Chopra from J.P. Morgan. Please go ahead.
Hi, thanks for the opportunity. I had a question on Mia. You know, wanted to understand what is the revenue size for this brand for FY 2023? What is the split coming from the standalone stores? There are about 111 stores now. How are you thinking about, you know, the store addition plans here?
Hi, Latika. Ajoy here. Mia has done exceptionally well. It's gone up almost 3x in the year. I mean, just to give you a sense, in consumer price terms, it is about INR 730 crores-INR 740 crores this year, growing rapidly. We expect, you know, Mia to hit INR 1,300 crores-INR 1,350 crores in the coming year. About 40% of the business is coming from Mia standalone stores. The rest of it is coming from Tanishq stores because it's a brand of Tanishq. Right now very negligible is coming from online. The opportunity or headroom on online is huge because the ticket sizes are bang on.
In terms of the 110 stores or whatever that you talked about, we expect to double that by the end of this fiscal. We are going aggressively on expansion. The opportunity is huge. This is still within the top 30, 40 towns. Not really going too deep. In fact, most of it in the top 25 towns. We see a large opportunity for Mia and fine jewelry is kind of coming of age. CaratLane is also seeing that. Mia is also seeing. This is an emergence of a segment which is very exciting.
Thank you. Yeah, I just wanted to also check, you know, for CaratLane, is there a timeline or a thought process or even if there is something that you would want to acquire rest of the stake in the company, is this something that could happen in the immediate future? You are pretty happy with the arrangement or ownership that you have currently?
Look, Latika, you are well aware, and you have asked, I think, earlier also that, these matter cannot be commented upon till we become obliged to inform with the stock exchange, and which we will do. Right now we would not like to comment on that kind of question.
Sure. Sure. The last bit I had was on watches business. I think if I heard it correctly, you mentioned 12%-13% target margins for this segment. Could you share what has been this revenue salience of wearables in FY 2023 revenue mix, and what kind of margins does this operate at? And is this a reason that probably margins for this segment could be in this band?
Yeah. Latika, the quarter four, we were about 13%, but for the overall year, we were about 10% of the total turnover. The margins in this are slightly lower than watches. This is also reflective of the, you know, three decades of leadership that we have in watches, that we're able to command that kind of premium. Having said that, in wearables we are at a premium to similar comparable products from other brands and doing well. Over a period of time with various other business decisions, including Make in India, the margins will only improve. Yes, long-term wearables presents a huge business opportunity where inherently the margins are of a lower profile than watches.
All right. Thank you.
Thanks.
Thank you. The next question is from the line of Chirag Shah from CLSA. Please go ahead.
Yeah, hi. Thank you for taking my question. Ajoy, I just wanted to share your wanted your thoughts. In a phase of rising interest rate environment and higher gold prices, I was wondering how this interplay impacts our business. One, from a perspective of the spread in borrowing cost between gold leasing and informal sector borrowing costs. Fair to assume that this spread would have widened because the working capital cost increases for the informal sector should outpace the increase in gold leasing rates. Then, you know, how does this impact franchise economics? This is of course beyond the franchise sharing agreements that you kind of alluded to.
You're right that, informals or unorganized sector will find it more difficult with rising interest costs. As it is, bank borrowing is not easy for them. Jewelry sector is not very favored by banks. Higher interest costs and tougher financial conditions will impact. From a customer point of view, you know, we are not seeing. In the sense once gold rate stabilizes, customers are actually comfortable coming in. Yes, in terms of maintaining certain quantum of gold, let's say kilograms of gold, it does impact. Having said that, the informal sector also does not in a way, you know, they don't. They have gold which is historically there, not on debt, and they typically view that as wealth. Their quantum of gold holding is also quite significant compared to us.
In terms of stock turns we are much better than most. They don't look at stock turns. You know, I don't know, maybe if it sustains for a long enough time, it does create pressure. Certainly those who are weak tend to become weaker, and many of the independents who are strong become stronger. We've seen that happen over the last few years. I'm not sure if I answered all parts of your question. Is there something.
Right. On franchisee economics, how does the rising interest rate environment impact them?
Well, for L3s it can affect because L3s are on buy and sell, and therefore there is an impact on them.
Right.
There is enough, the margins and the returns of L3 are very high, and their returns on investment are pretty strong. Many of our L3s are also quite older in the system and they're doing, getting fabulous returns. Their scale economics are very high. For the lower for the newer L3s who might have come in the system, yes, there is impact. There, in fact, you know, our new structure is enabling them even better. As I was telling, some franchisees may have lost, but many have gained. Many of the smaller, newer, and lower scale franchises are actually going to gain in some of our changes that we have made about structural changes. No, it's not a big concern for us, if that's what bothering you.
Got it. Can you just give us a sense on the trend of Golden Harvest registration? Secondly, on the studded active, studded jewelry side, of course, this was an activation quarter. We have also mentioned that the lower cost inventory of diamonds is kind of behind us. Can you just explain how does the inventory buying cycle really work on the diamond side?
On Golden Harvest, we've had fabulous enrollments. Quarter three, quarter two, quarter three, quarter four are very healthy double-digit enrollments. We have a metric called enrollment to buyer ratio, which is driven across different stores, and we are seeing fabulous percentages there, all-time highs. That is very good from a lead metric for future intent to buy jewelry, at least from us. We are very happy with Golden Harvest, and it's actually firing very well for us. Regarding diamond studded, yes, the activation quarter was good, therefore we had a better mix than last year. It was still slightly below if I go pre-pandemic year, you know. That year again, last 15 days there was a lockdown and gold got affected, so I'm not able to comment.
Yes, we have come close to what we used to be pre-pandemic in terms of studded ratio. We expect to drive faster growth in studded. I mean, that's always been the intent. You know, this then, we have delinked the two in the sense we no longer worry too much about the ratio as much as each segment growing at a certain pace. I didn't follow the question on the inventory cycle, typically studded inventory turns are lower than the gold ones, you know, pretty much because that's historically the case.
Yeah. My question was more from the perspective of, you know, on a slide you've mentioned that the consumption of older, lower cost diamond inventory got over in Q3, and you are now getting into the newer inventory buying cycle. How does the diamond inventory buying cycle work?
Okay, I got it. We had opening stock of diamonds at a certain price.
Yes.
Because it had gone up, we had increased the selling prices, which was ahead of the cost hitting us. The consumption of all those low-cost diamonds is over and done, therefore there's a normalization or, you know, of the studded margins so that diamond inventory gains are no longer there. How does it work? We typically work on, you know, some consumption cycles, and we have to predict three to four months ahead of time to buy diamonds. It's one of the most challenging questions you've asked. Even I'm trying to figure out whether we can do it better.
Got it. What exactly do you mean by digitally influenced sales, which is now at about 18%?
Digitally influenced, that is in CaratLane?
You are referring to which particular segment? There is a on your on one of the few slides earlier, I think on slide number nine, you've mentioned digitally influenced sales in Q4 was close to about 18%. Slide nine.
Okay. slide nine.
Yeah.
Okay. We just need to. We, when we look at digitally influenced sale, actually there is online, people who come online buy online. There is people who come online, engage in a conversation with our live agents, et cetera. Thereafter we do an omni. That is they, we hand them over to the store buys. There is a third element. We also do a lot of endless aisle, video call based selling, et cetera. That also we are in a way, so if the customer may have walked in in some store, might see products lying in some other store. All of that we also look at, you know, in terms of digitally influenced.
There are some other indirect attributions that we also look at in terms of people who were reached out on social media and digital, and then how many of them actually came in and bought. That is some data that also comes to us from our partners. Okay. I think a lot of that 18% that you're seeing number there, it is about joint closure of omni and online. I think that 18% is a weighted average of, you know, between CaratLane, Tanishq, Mia, all put together.
Got it. If I may just slip in one more to Saumen. What is the revised store rollout target for the Eye+ business now, and can you dwell a bit more on the distribution model expansion going forward, please?
Hi.
Hi, Saumen.
We would open another 100 stores, in the coming eight to 10 months, hopefully in the first six months. We are not going beyond the top 20, 21 cities.
Okay.
That's the change that is that we have made. In the around the first half of the FY 2024 or around that period, October, November, I think we should be around the number that we spoke about one and a half years back. On the distribution front, I think, we have taken some aggressive goal here. I think we have altered our product portfolio. We have also reengineered the terms of trade for our, you know, dealer fraternity. With this, we believe that we will be able to reach out to a lot more booklets across the length and breadth of the country, and therefore we should be able to get it to lot more customers.
In the areas, in the districts, in the towns where, let's say, a retail store by itself may not be most viable proposition.
Got it. you know, you explained the margin part for this quarter, but if I can just get in a bit more there. you know, you've mentioned that This quarter was about 61%, which is lenses at about 20%. has the product mix also impacted margins? You know, do you think the competitive intensity last quarter was much higher with your key competitor getting more aggressive?
I think competition wouldn't have affected our overall number, both the top line and the final thing. I think some of the things that I explained. On the top line side, one channel did not really make any contribution towards the last month, and we also had to make certain correction in order to prepare ourselves for the FY 2024. On the cost front, there are a few one-time thing has hit us. I would broadly place the quarter four results in that space rather than saying that a external factor has impacted our numbers.
Sure. Thank you very much, and all the best, guys.
Time for us to close.
Thank you.
Sajan?
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. C.K. Venkataraman for closing comments. Thank you, and over to you, sir.
Thank you very much, everyone, for all the probing questions, as always, and I look forward to seeing you three months from now. Bye-bye.
Thank you. Ladies and gentlemen, on behalf of Titan Company Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.