Ladies and gentlemen, good day and welcome to the Titan Company Limited's Q2 FY 2022 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 would now like to hand the conference over to Mr. C. K. Venkataraman, MD from Titan Company Limited. Thank you, and over to you, sir.
Thank you very much. Welcome everyone on the call. It's been a wonderful quarter two of FY 2022, and I must, at the outset, thank all the members of the large Titan Company family, including members of, you know, CaratLane family and, including employees, franchisees, vendor partners.
Ladies and gentlemen, thank you for patiently holding the line. We have the management reconnected. Over to you all.
Hello, everyone, once again. Like I was saying, the vaccination levels continued at the momentum at which we had started in Q2 and paved the way for consumer confidence returning. All the innovations and outreach done by various divisions and functions of the company helped deliver the kind of growth that we declared in the first week of October to the stock exchange that you're all familiar with. The presentation has anyway been uploaded for you to see. All the CXOs are here on the call, as well as some of my colleagues from the finance department. We can actually go ahead with the questions right away.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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 Securities. Please go ahead.
Yes, sir. Congrats on a good set of numbers. My first question is on jewelry. In studded, there is Y-O-Y improvement, and you have also pointed that versus pre-COVID, still, it has not normalized. Want to understand, when do you see the 38% kind of studded share which was there, say, two years back, or say 35% plus kind of a number. When do you see that coming back? And any clarity you can give on the wedding sales. You have said it's higher on both one year and two years, but if you could quantify that.
Hi, Abneesh. Ajoy here. You're asking about studded ratio.
Yes.
As we've said that in the recent past a few times, that we are really looking at independent growths of gold jewelry and studded jewelry separately. Studded jewelry has certainly grown over pre-pandemic quarter two as well as very handsomely over the last year as well. It has fully recovered and in fact showing growth. Now, it so happens to be that gold jewelry continues to show even higher growth, and therefore the ratio is looking subdued. Whether the ratio will hit 35 or when it will hit 35 in whichever quarter or 32, whatever number, is very difficult to predict because it is a function of customer behavior. If people continue to be bullish on gold, they will continue to buy more gold jewelry.
Having said that, internally, we are ensuring that we are continuously targeting a high growth in studded so that the absolute gross margins and overall profit in rupees crores is significantly higher. Second question was on wedding jewelry. We have seen, let's say, a 1% improvement in the contribution in Q2 on wedding jewelry. If the growth in retail at an overall level is 69%, we have seen an 81% growth in wedding over the previous year. Even over the pre-pandemic, if 61% was the overall growth, we have seen a 74% growth in wedding.
Abneesh, just to add to what Ajoy is saying, the studded ratio is not an ultimate KPI. It is an intermediate KPI. The ultimate KPI is the profitability of the business, which is determined by the scale of the gross contribution in absolute crores, like Ajoy said, and the fixed costs which are sitting below that, which finally deliver the EBIT margin. It is not an ultimate KPI, and we are chasing growth in studded and not the share of studded.
That helps. One follow-up on jewelry. CaratLane, again, a very good sales growth, 95%, and profitability also. My question is, we are seeing some of the competitors also raise money, for example, Melorra, et cetera. One, if you could speak on the competitive intensity in CaratLane and how you plan to be ahead of some of these new players who are also getting funding.
You're right. BlueStone is also expanding at a rapid rate, which is probably a larger and much closer competitor to CaratLane. Melorra has raised some money, but Melorra is still very, very small, and we would still think it's a long way to go in terms of their scale. Their run rate in a particular month might have enabled them to get a higher, you know, kind of overall top line. We think that intensity of competition in the category overall is high. All the other players are also expanding in a big way. ORRA is expanding, Reliance is expanding. Each of the major players are also launching, jewelry for younger, target audience in their respective stores, whether it is Kalyan, whether it is Malabar, whether it is Reliance.
Overall, there is a good action on the younger piece.
Sure. My last question is on Taneira. If I see store expansion in the first half, almost across all formats you have added, Taneira is one of the few formats where there is not a single store addition. In fact, square feet has been cut by 3,000 sq ft. You have also mentioned that Taneira would have grown marginally versus, say, two years back. What is the issue of cut in the square feet and why no addition in the first half, but a strong addition in most of the other formats?
Yeah. The ambition for Taneira in FY 2023 itself is very, very large, Abneesh, and we will share that very specifically in the next call, hopefully. This, you know, the biggest disadvantage that Taneira has compared to all other businesses is because of its newness. It does not have an established customer base, which unlike other businesses can dip into even during times like this to grow sales. Taneira does not have because it's a very, very young business. In a work from home situation in the last one and a half years, not just work from home, but live in the home and not go out kind of situation, the socializing, weddings, all that have come to a, you know, very low level of activity.
The demand, the need for sarees has been, you know, substantially low. Quarter two performance of Taneira was actually among its best in the last many quarters. That contraction in sq ft could be more to do with a particular store relocation from a large format to a medium format. That's the explanation for that.
That's very helpful. That's all from my side. Thank you.
Thank you.
Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi, sir. Thanks a lot for this. You know, just wanted to understand jewelry EBIT margins a little better. It seems from the two key performance that customers are showing an increased preference for new launches because we've seen wedding share rising, studded mix lower than pre-COVID FY 2020, but EBITDA margin jewelry is still higher than what we saw in pre-COVID FY 2020, adjusted for obviously the bullion sales. If that understanding is correct, A, could it kinda help explain that? B, if that is the case, does that imply that as we move towards a normalization, we should see margins probably, you know, closing or trending higher than the pre-pandemic levels of 2%-2.5%?
EBIT margins are actually in that range already for the quarter. As Venkat explained early on.
Mm-hmm.
The previous one, that the absolute gross margin contribution in rupees crores gives scale benefit. With scale benefits, you're getting the higher. It is, yes, to some extent wedding and to some extent. I don't think about newness as much as people are comfortable paying for, you know, designs and making charges, et cetera. We have been able to sustain our margins at an overall level. I don't know whether it is to do with newness as much as to do with the fact that people are happy buying jewelry for adornment.
No, what I mean by newness is that given that, you know, when you pay extra, essentially you're paying for the design aspect that, you know, Tanishq brings to the table, which is what you are highlighting that, you know, it has got to do with people willing to pay. If people are doing that, I mean, when we exited FY 2020, we were actually trending at a higher margin trajectory than what the full year implied. Would that be fair to say that full year FY 2020 is not, we should probably, as things normalize, we should probably close at a higher level?
I didn't follow when you said full year FY 2020 margins were high. Can you clarify what you mean by that?
FY 2020 margins were around 11%, sir. You know, studded share was around 38%. We are at 30% in FY 2022, and margins are at 13% in the jewelry segment. In that context, I'm again removing the bullion, assuming there's not many large contribution from bullion sales.
I think the simplest explanation for that is the growth in top line.
Mm-hmm.
Has been substantial over even the previous. It is, you know, 75% plus growth. That has given us scale economies, and despite a lower studded share, has given us a much higher EBIT margin. That's the simplest explanation, nothing more.
That is what we will continue to chase.
Okay, fair enough. The second bit I wanted to kind of just get is if you could give us any sense on, you know, given that watches, watch business obviously on scale benefits has started to, you know, move back on the margin trajectory. Any guidance on where do you see this trending and for the full year or more importantly for FY 2023, what would you target?
Actually, we are focusing rather more on
You know, making the analog watch category much more interesting to customers, exciting to customers, investing in various forms of, you know, transformational programs to grow. Because the company is in a very good position to sort of get all the cylinders, you know, firing at the same time. Honestly, the portfolio aspect is what I would bring in here, and we would invest in the growth for the watch business in the next few quarters and get the results thereafter rather than worry about margins now.
Thank you. The next question is from the line of Rakesh from RARE Enterprises. Please go ahead.
Good evening, friends. Actually, in my 20 years of ownership of Titan shares, I've never seen a quarter like this. What a quarter. My deep heartfelt congratulations to Mr. C. K. Venkataraman and his team and all Titanians.
Thank you, Rakesh.
Congratulations are nothing to say, but I have a few questions. See, the watch division has done, in my opinion, the highest ever quarterly sales ever done in history. If I'm not wrong. This has happened in a non-festive quarter. Because in general your highest sale comes in the third quarter in watches. So do you think, I mean, do you think it's a trend or it's a one-off? Has the work and the performance of the eyewear division with a 23% margin and INR 170 crore is not a very high sales figure. So, I mean, how do you see that in future? My third question on the jewelry division is that, you know, we're expanding from 353 stores, we are going to 368 in six months. You added 16 stores.
What is the amount of stores you hope to add in the next six months and the next 18 months?
Okay, I'll go first. Hi, Rakesh, this is Suparna here.
Yeah.
Yeah. Watches, yes, it was.
Congratulations, Suparna.
Thank you.
What a very good performance.
Thank you. Thanks a lot. Yeah, quarter three also is something that we are looking forward to. Now with all cylinders firing, all stores open, all channels doing well, whether it is multi-brand or our EBO format, we hope to continue this streak. We are finding consumers back in the market. We have put up very good campaigns, very good collections, which are bringing out customers. Customers are choosing our brand, especially Titan, in preference to many others. We've gained a little bit of market share in some of the multi-brand formats. Things are looking good, and we hope to continue this winning streak.
Another question I want to ask you is, do you think you see a natural improvement in margin because of scale? I mean, my margin, you know, I may invest more, but if my sale goes from INR 400 to INR 700, because you already have fixed costs in the watch division.
Ab-
You know, you get a very big advantage of fixed costs when the sales go up.
Ab-
Don't you feel like that should lead to a natural improvement in your margin?
It will. We are focusing on growth. We are chasing growth. We are chasing increase in market share, increase in customers, increase in revenue. What you said is right. The moment our fixed costs are covered, everything else is only going to go straight to the bottom line.
You invest when you increase your advertising, or you may lower the watches, or you may lower the price, or you may increase the content of a watch. I mean, your essential contribution of sales, less material, is not going to go down. With volume increase, you are going to get a lot of advantage because the fixed cost will remain the same, and you have high fixed costs.
Yes, absolutely.
I think we have to have a deeper study of why even after investing, even despite investing for further growth, you should get better margins if you get volumes.
Yes. Completely agree.
I know I'm complicating myself. Anyway, we'll discuss it offline.
Sure, sure.
I have a question from the CEO of the Eyewear Division. How do you look at this sales growth? I mean, do you think it'll continue at 20%, 25%, 30%? Or you think it'll be better and there's a lot of scope to open new shops?
Hi, Rakesh, this is Saumen.
Yeah. Hi, Saumen.
Thank you.
Congrats. What a performance.
We are going to expand the footprint significantly. In another 15 months, we see a huge number of store addition now that we have a good business model as well as
How many stores?
We are hoping to add another 150 stores-200 stores in another 15 months or less.
15 months?
200. It's 250 stores.
250 stores in three months?
In 15 months. 12 months-15 months.
In 12. Is it probably because the Titan brand is selling more, which is most profitable, and because you're able to sell more lenses?
Yes. Actually the profitability has improved, partly because it has actually a product mix, more focused on house brand, therefore Titan brand, Fastrack brand and so on. Second is the channel mix that we have somewhat altered. Some of the, you know, more expensive channels, either we have done away with or we have controlled the way sale happens today. Combination of these two has brought us to 20 plus.
A very tight control on discounts?
Yes. No, actually, in the last 18 months, we had no activation, no discount sales and so on and so forth. We believe in a category which is basically a need-based category. We don't have to go back to that. At least 90% of that would definitely stay. Overall
I am not really forecasting, but 18%-20%, I think would be a sustainable kind of a profit margin.
You know, today the organized eyewear market in India is a very virgin market because there is only about 10%, 15%, 20% is organized today. There's a long way to go.
Even Rakesh, you know, the last 18 months, Saumen Bhaumik and team have spent on actually transforming the operations of the business and extracting value from the business.
Mm-hmm.
In the next 18 months, they're looking at substantial growth.
Yeah.
which we will specifically share later. He gave an indication from the network expansion side, and therefore investments will be required for that, because, like you said, the share of organized is low, the upside, the headroom for growth is huge. This category is only going to get bigger and better.
Mm-hmm.
Therefore the next 18 months is a lot of focus on growth as well.
Mm-hmm.
Even as Saumen Bhaumik is sort of hinting at the kind of margin, but the growth will now start, you know, coming in for a greater focus, and it will dilute the margin to some extent.
C. K. Venkataraman, I will tell you one thing, I use Titan lenses. Earlier I used to use that expensive INR 60,000-INR 70,000 rupee lenses. I now find that Titan lenses to be really good. Congrats, I tell you.
Yes.
Saumen, you have done a very good job. I really feel happy.
Thank you.
I had a question about jewelry division. See, your inventory in jewelry is about INR 7,000-8,000 crore, and your loan on gold is INR 4,700. That means we have financed INR 3,300 of stock through our own money. Why don't we increase the lease on gold, and then we reduce the cash, increase the cash?
We are following a principle of around a targeted percentage of gold on lease as a percentage of the total inventory. If it becomes too high, there's a lot of lumpiness in the cash flow management on the one hand, and on the other hand, there is always that little bit of risk of, you know,
Yes.
dependence on GOL.
Right.
We are following a targeted proportion to optimize the cash flow.
Also, Rakesh, one of the biggest drivers of growth for us is the exchange program.
Right.
The exchange program, we buy gold from the customers, jewelry from the customers, and that's on cash.
Right.
That will certainly determine the balance on lease in the gold on lease.
Mm-hmm.
We can get only so much smart on the sort of converting that cash bought, gold bought with cash into GOL. You know, beyond a point we will not do that.
What is the plan for opening of shops?
Yeah.
Tanishq.
We've opened 15 net shops.
Yeah, I saw that. What do you think you have opened in the next six months and next 18 months?
Next six months, we are looking at 20-odd stores. 18 months, I don't have a view, but we will be developing a view. Typically, we've been adding 30-35 stores every year. When we do the business plan, we'll have a better idea.
That kind of momentum should continue.
Yeah.
If you have mapped out India, how many stores can you open, you think? All over India, you map out. Maybe it takes four years, maybe it takes five years. When you map out India, there is a place where Tanishq store is openable.
We are currently at 370-odd stores as we speak. By the time we end the financial year, it'll be around 390 in Tanishq. Now, I think from a three to four-year horizon perspective, certainly the number of towns that are available in middle India are huge.
500.
500 plus. Maybe more also. We have to do the strategy.
Because with time a lot of towns are developing, lot of non-metro, non-tier stores also, smaller towns also come into the picture.
Yes.
Growth is coming so fast.
Yeah. You are right, Rakesh.
You know what? Congrats on a fantastic performance. I mean, I'm really overwhelmed by the results and your performance. Congrats on the team.
Thank you.
I'm of the opinion it will continue, and I hope it does. Thank you so much, and congrats on the win.
Thank you.
Thank you. Before we take the next question, a reminder to the participants, please limit your question to one per participant. You may come back in the question queue if you have a follow-up. The next question is from the line of Aditya Soman from Goldman Sachs. Please go ahead.
Hi. Good evening. Just one question. In terms of you talked right now about the exchange program. Any sense on what proportion of your sales are made through the exchange program? Going forward, how do you see that panning out? Was it exceptional in this quarter, or do you think the exchange program the percentage of sales that you saw in the quarter is something that you expect to see over the next few quarters as well? Thanks.
Yeah. Aditya, the gold exchange program contribution actually is still to catch up as a percentage. Pre-pandemic Q2, it was 40%. Last year it was 33%. This year it's still at 31%, I think. It's linked to multiple things. It's linked to people's outlook on gold. It also is linked to wedding purchases. We think it should get back to 40% over a period of time. Frankly, right now, in the last two years, we are seeing people are hanging on to the gold they have. Maybe it'll take a little longer to catch up.
Maybe just to add, they have savings in hand of last 18 months. If they really did not exchange gold, they can actually take out money and maybe something of that is also happening.
Understand. Very clear. Thank you.
That lever could play out a little differently as we go forward. Can't predict actually.
Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi, sir. I just wanted your view on the consumer behavior here. This is a category where demand can easily be postponed, at least to a significant extent. If I look at the pandemic period, I mean, the five quarters or so, even March quarter of FY 2020 was also affected. Taking all those five, six quarters into consideration, if there was no pandemic and the growth had continued as normal versus the growth that you actually saw, the differential between this is quite material. They would be anywhere between INR 4,000 crores-INR 5,000 crores of sort of lost demand. Just wanted to get your view as to how you think about this.
What percentage of this can come back? What, demand can be postponed? What is lost forever? Because Indians also use gold jewelry as a store of value, and subconsciously, my view is that over a three, four, five-year rolling, period, they want to park, some amount of, money into, gold jewelry. And therefore, this lost demand can actually come back, to a large extent. Your take on that, please, sir.
Very complex question. Honestly, the answer is, you know, not at all easy. We have no such view on it, honestly. We are taking, you know, the quarters as they come and maximizing the opportunity as it exists around us in the quarter rather than really, you know, examine what the question that you're raising.
Yeah. I'll give you one top-level further response. There is obviously some pent-up demand. There is some share of wallet gains. And then there is some wedding demand which does get deferred here and there. Beyond that, it's very difficult to conclude on what you said.
Right, sir. Second question is, in terms of your volumes, how do you see those recovering? Because ultimately, over the last two to two and a half years, the gold price has inflated, like, 50% plus. Now I know that a consumer has a particular budget in mind, et cetera, and therefore he sort of takes a hit on the volumes. But is it exactly a one-to-one correspondence or there would be at least some benefit of the gold price going up on your overall revenues?
Yes, true. This quarter, the kind of growth that we have declared, there is obviously a certain ticket value increase due to gold price of around 25% plus. The rest of it is volume, whether you look at buyers or you look at grammage.
Thank you.
We are seeing a very healthy revival on buyer growth, and, you know, we spoke about it earlier. Higher growth is a more closer representation for volumes for us rather than grammage. Having said that, this quarter grammage has also grown significantly.
Part of it would be pent up. Part of it is also market share gain that we are continuing to make in multiple mini Indias where we are competing, which is leading to the volume growth.
Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi. Congrats on good set of numbers, and thanks for the opportunity. Couple of questions. First pertains to ad spend. Ad spend still is indexing lower than pre-COVID levels despite very good momentum in the business. Any reset there or any insight if you can share on that, of course.
I think one of the larger points here is a huge and growing discovery of the role of digital, the role of customer relationships, which we are capitalizing on for growing sales rather than the typical mass marketing approach of you know, earlier years. I think the COVID situation has helped us appreciate you know, every INR 1 crore, every INR 10 lakh of rupees, how it can be spent very, very effectively. Therefore, the assessment of the advertising as a weapon is constantly undergoing substantial changes. Even, for example, the expenditure that we are making into creative film. More and more films are being seen on small screens, which are just three inches you know, wide, and therefore the budgets for these films are you know, 120th to 150th and all that kind of thing.
Multiple things are happening to, you know, reduce advertising but still deliver exceptional, you know, effectiveness.
Venkat, should we see this as a permanent reset or is it still under deliberation?
Nothing like that. Nothing like that because we are also pushing growth. Just giving you an overall sense of the share of digital and more targeted communications on the one hand, the cost of digital performance marketing and all that, the role of Encircle relationships and the analytics in unlocking sales opportunities is not that now we have permanently brought down the advertising percentage to sales to a lower level, nothing like that. I'm just giving you a perspective here. These are all dynamically evolving subjects, and the divisions will take their view depending on the situation.
Sure. Second question on staying with digital, e-commerce saliency in watches segment has actually increased to a very healthy level of 25%. Just wanted to check if it is driven by change in mix in favor of more variables and how should we see the contraction in footprint in World of Titan in relation to this change which we are seeing in favor of digital in watches?
First, it doesn't have anything to do with wearables. I think our analog watches are doing very well online, both in the marketplace platforms as well as our own brand e-commerce sites. The quarter two was a little unusual because there was a lot of pipeline filling in some of the big e-commerce sites in anticipation of the big Diwali wave. It will kind of get evened out in quarter three. Having said that, we have now a very strong presence in e-commerce and doing very well there in analog watches. Store expansion is something that is continuing.
In fact, for us, in the World of Titan chain, we are more focused on renovations and making the stores much more modern and much more premium. Yes, store expansions are there, planned for the second half. Equally important, very major transformation journey of the look and feel of our World of Titan as well as Helios stores, which will allow for a much better consumer experience and sale of more premium products. That's where it is. E-com will continue to be strong. Maybe Q2 is a little overstated. It will probably get evened out in Q3, and we continue to be very strong and investing a lot in our on ground presence.
Thank you. The next question is from the line of Nillai Shah from Moon Capital. Before that, I would like to remind participants again to please limit your question to one per participant only. Thank you.
Hi, Venkat. Just one question from me. In terms of the business going into the festive season, now that a large part of it is behind us, can you share some numbers as to how the jewelry business has performed into the festive season this year?
Very happy with the results about the build up to the Diwali season. Not really going to share numbers on this call. Is it? Sorry, is it Nillai?
Yeah, Nillai.
Yeah.
Yes, sir.
The performance has been very, very good and very, very satisfying, but we're not sharing any numbers on the call.
Okay. You know, we haven't heard from you for the full year guidance because of, you know, the postponement of our meet this year. Anything you want to share, going forward as to what the aspirations are, you know, for the business?
No, nothing really, Nillai. I think just like, you know, last year also, we had a certain view about how we will build from a recovery, we'll come into a growth phase and all that quarter- by- quarter. I think this year it's looking better than the rate of recovery for last year. As you know, Q2 has shown even in the most discretionary of our businesses, we are pretty gung-ho about Q3 as well as Q4, but not really giving a guidance for FY 2022.
Okay, got it. Just one small question. You know, in terms of the gold on lease part, I understand that a fairly large percentage of our you know, of our gold is basically from exchange from customers. Now, as you think out the next three to five years, this value will keep moving up quite dramatically. Why is it not possible for us to get that gold on lease and do a sale back into the market and then shift back onto the gold on lease? Because the gap between you know, holding that versus essentially gold on lease will be a good five, six percentage points. Just wondering why that is the case beyond just the overdependence on gold on lease. Does digital gold in the long term solve that problem?
As you know that almost 50% gold sourcing is through gold on lease and 30%-35% is exchange program, but the rest of 10%-15% is still on the spot. You know, we do depending on everyday economics. You know, there is a team which evaluates those economics, which method is fine. But one thing which we believe that we are in the business of buying gold and adding value and converting that into jewelry and reaching and satisfying our consumer needs. We don't want to be. For inventory management, we do resort to bullion sale, which you see in every quarter. Like this quarter, it was INR 192 crore which we sold. Of course, that got replenished through GOL. But it is more for the inventory management sometimes.
We don't want to, at this point of time, kind of make it a very, very active.
High selling in India. That's the current situation.
In reality, what will happen, you know, if, for example, the entire gold that we exchange, supposing we were to convert into GHS, and that sale will come at zero margin, and therefore the enterprise, or certainly starting with the division, the EBIT margin of the division will just plummet with a very 50% share of sales with, you know, zero margin kind of thing. I mean, what is the significance of that? It's, I mean, one way you win, one way you lose kind of thing.
There are other issues also. Someday we can discuss the GHS is typically through import route. It requires too much on the gold imports in India and
The corporate responsibility is to actually reduce, you know, that aspect as well.
Yeah.
The next question is from the line of Richard Liu from JM Financial. Please go ahead.
Hi, good evening, everyone. I just want to check, am I audible?
Now please, could you speak a bit louder?
Okay, one second. Sorry. Sorry about that. You know, I wanna just go back on this watches versus eyewear, you know, margin question. I think that was discussed a bit earlier. You know, the way I was looking at it is that you made about 23% margin on eyewear. What we were given to understand at one point in time is that both watches and eyewear had broadly similar level of gross margin, right? I mean, if that be the case, you know, how are you able to extract 23% margin from a business which is 20% or 25% the size of the watches business?
The watches division is not able to come anywhere near that number, despite a much bigger scale. I understand there's an aspect of manufacturing assets, et cetera. Is there a lesson for you to draw upon, you know, from the eyewear margin experience, you know, and juxtapose it to the watches business here onwards?
It's not an easy question to answer on this call because obviously the fixed cost aspect, not just the manufacturing, but multiple fixed cost aspects of the watches division are sitting between the gross margin comparison that you're making and the final, you know, profit margin, including things like, you know, advertising and all that. It's honestly a difficult question to answer.
I also said that the exceptional profit margin of the eye care division in Q2, let's not take that and take it into the future saying this is the new level because we also want to invest substantially in growing because the scale of this business, given the opportunity in the market, you know, is small and we want to invest, and you will not see that kind of margin coming back for the next few quarters at least.
If I may just, you know, add, Venkat. The fact is that over last six quarters, there has been a structural change in kind of eyewear business profile, from the gross margin perspective, and Saumen talked about more in-house, you know, brands, lenses, the channels which were kind of expensive, streamlining on that. There has been a structural change which is going to be permanent. For the growth, whatever investment is needed in future may not lend itself to 22%-23% for next few quarters. Watches is a steady business, I would say, at this point of time, so they are maintaining their gross margin and once they really grow, growth would be the biggest lever for their margin expansion.
Two comments here if I may. You know, you know, forget about 2023. Even if I talk about 2018-2020, you know, I don't remember the watches business ever making that kind of a margin in the past, right? Second, if you can just help me a little bit out here. You know, is my understanding correct that both these businesses have broadly similar gross margin or has things changed significantly, you know, after the recent restructuring that you've done? Thank you.
We don't give kind of gross margin numbers for business, but at this point of time, over last six quarter, eyewear has gone up, gone better than watches.
Also, you know, there was because of the situation in which Eye Care Division was in FY 2020, it was a loss-making division. Substantial transformational, you know, initiatives were undertaken to extract value and you see the results. The Watches Division is a profitable division and sure it was not at 18%. Yes, but it was at 13% and 14% and 15% and the pressing nature of the situation in the Eye Care Division was very much not there and we are not feeling it like you may be feeling it because we look at it as a portfolio. We want to invest, continue to invest, in the Watches Division.
Thank you. The next question is from the line of Ashit Desai from Emkay Global. Please go ahead.
Yeah, hi. Thanks for the opportunity. Just wanted some thoughts on any kind of gains that you've seen from hallmarking and also any trends in terms of market share gains that you can quantify?
Hi, Ashit. Yeah, Ajoy Chawla here. At this point, I think it would be very premature to assume any gains on account of hallmarking, largely because the deadlines have been pushed back to post Diwali, et cetera. Even that, there was some noise around HUID and
You know, tracking, et cetera, and the software issue. I think because it's got pushed to post November or post Diwali, right now, I don't think it would be right to assume any market share gains. In the future, how things pan out, we will see. In terms of overall market share gains, while there is no formal industry number, but we track based on city by city, region by region, and we compare with regional players as well as national players. Overall, our sense is we have gained market share across, virtually every region and every city, to varying proportions. Some places much higher, some places little lower.
Overall, it's difficult to gauge because every player in the industry seems to have grown very well in the quarter that's gone by, whether it's a small independent or a local chain or a national chain. Everybody has grown. The relative growth might vary, and therefore, the market share gains may, you know, we've kind of grown a little faster than the other. Percentage-wise, it would be very difficult.
Thank you. The next question is from the line of Amit Sachdeva from HSBC. Please go ahead.
Hi. Good evening, everyone, and thank you for taking my question. Congratulations on very good set of numbers. I have a question for Ajoy. It's more conceptual than any quantifiable thing that I want. You know, as I understand, Ajoy, the jewelry as a category, my hypothesis is that category is with a large network effect, even the brand is not visible and consumer wears it, such aspirational brand such as Tanishq. There, there's a large tendency for consumer to talk about it to others when they buy it. My question is that, do you measure network effect as you become larger and larger? And are we at the tipping point where network effect is actually helping you grow much faster?
If yes, are you using that as a part of a consumer recruiting strategy, or is it something that is more visible that was not visible in the past? If you can talk about some of that experience, that'll be very helpful.
Okay. We haven't thought about it in the form of network effect and word of mouth. Surely, word of mouth has been going up. Our overall visibility and presence across many cities in the country has certainly gone up. We are now there in 220 plus towns, and we'll continue to drive growth. Not just towns, also catchments within certain towns. So that is certainly helping us. Therefore, the scale benefits that we are seeing on account of, let's say, the disproportionate growth in top line with small growth in marketing investments. Other than that, I'm not able to currently articulate specific network benefit effects. See, the other benefit that I can share is our organic growth on website has been quite good.
While, yes, we do digital marketing, we've seen a 20% jump in the unique visitors on our website over last year, if I were to think of it. Of course, you know, that also indicates a certain degree of interest in the brand.
Mm-hmm.
Other than that, I can't see. Golden Harvest is the other one which is where you can say there's a network benefit, but I don't know whether it's a network effect the way you have articulated.
Amit, certainly we have, you know, spoken about this, not on the call, but within the company for many years, which is the role of retail as the face of the brand. As the number of stores are, you know, we are setting up across the country, and Tanishq certainly has got some of the best in every city, in every location. The store as the brand, as well as the customers as the goodwill ambassadors of the brand. If you look at the share of advertising to sales trend, we have certainly kept this as an angle to keep reducing the share of advertising spend over time, implicitly recognizing that the network plays a role.
Thank you. The next question is from the line of Vishal Gutka from PhillipCapital. Please go ahead.
Hi, team. Congrats on a good set of numbers. I have two questions. A ground check suggests that Tanishq has started a pilot project of renting jewelry. If you can just help us with the outcome and the opportunities and challenges in further scaling this up. Secondly, if you can elaborate on digital gold. If you can give more details how this is similar to Golden Harvest scheme and any particular incentives or benefits they are giving customers to pick up this plan.
Hi, Vishal. CaratLane is actually piloting a rental project through a brand called AuDorn, A-U-D-O-R-N, and on rental for jewelry on rent. Very early days. Still learnings have to start flowing in. We will understand how customers are behaving, who's buying or who's renting and what kind of stuff, and then decide whether it's how to scale it and whether even to consider it for Tanishq, etc. It's very early days. On digital gold, it is not at all Golden Harvest, but let's say people can choose to buy a certain quantity of gold or certain value, as low as even INR 100 they can put in. It's really up to them. There is no return implicit in it, unlike Golden Harvest.
This is a more structured program. Digital gold, we have seen good traction. Currently, of course, we have a tie-up with SafeGold and kind of people can access SafeGold digital gold through our website, and they are the ones who are, in a way, invoicing, et cetera. There is a tie-up with them. We are seeing good traction. We are seeing a fairly large number of customers showing interest and a younger profile of customers, and people who typically at the time may be buying, you know, a couple of grams of gold at best. Of course, it varies. There's a dispersion in that as well. Early days, but we think it's an opportunity to recruit customers of a certain profile.
In terms of offers and benefits, now, the rate of gold, the digital gold is different from the gold rate in our stores. At the time of redemption, we made it a seamless experience. In order to enable this customer to buy a Tanishq jewelry, we do give a certain offer so that they don't feel that there's a huge difference between the rate of gold at which they have been able to redeem their DigiGold versus the gold rate in that particular store. To that extent, they feel they can convert most of the grams they have in DigiGold onto jewelry. That's what we are doing right now, and we are starting to see good redemptions as well. Again, it's the nature of pilot learning and interesting insights emerging, but early days.
Thank you. The next question is from the line of Jaykumar Doshi from Kotak Securities. Please go ahead.
Hi. Thanks for the opportunity and congratulations on a good quarter. I just have one question. Now, we are seeing 13% EBIT margin for jewelry business after several quarters. you know, over the past couple of years, you had a program for cost savings called War on Costs. I just want to. The question I have is 13% EBIT margin in jewelry business kind of a base margin if you clock close to INR 6,000 crore revenues a quarter? Should we expect that to move higher as mix improves? if so, you know, when you get back to normalized mix of pre-COVID mix of studded and gold, can this EBIT margin be 14%-14.5%?
I'm also assuming that absolute revenues will move up from INR 5,500 crores-INR 6,000 crores to maybe INR 6,500-7,000 crores. The idea of asking this question is, if I look at your December quarter performance, last December was again a quarter with INR 6,000 crores plus revenues in jewelry business and yet margins in that quarter was 12%. Just trying to sort of understand what is the sustainable margin that we should build going forward.
Right. I think firstly, comparing it to quarter three of last year, the studded ratio differs. In quarter two and quarter four, typically it's a higher studded ratio relative to quarter one and quarter three because of the activation we do on studded. It kind of alternates between quarters. It may be inappropriate to say look at 13% as sustainable. It'll depend. Now, if you go back and see quarter four of FY 2020, we saw 14%. If you see quarter three of FY 2020, 13%. So there are various margins that we are seeing. I think on an annualized basis, somewhere between the 12%-13% range seem sustainable.
If our numbers jump significantly in top line on a quarter-to-quarter basis, then of course we will start seeing more benefits on scale. At this level, I would say 12%-13% is a reasonable margin to expect. We don't want it to be very, very high also because invariably, you know, I think the headroom for growth is huge, and therefore continuously investing in the business for growth is important, and therefore the absolute INR crores that we are able to kind of clock in is more important. We would rather say that the top-line growth focus will continue to be the top priority. As long as we are able to deliver this between 12%-13% somewhere, that's fine.
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi, Venkat, Ajoy, good evening. Thanks for the opportunity. I have two question, extending on the digital part. This experiment, what we are trying to do as a pilot, I know it is just started about a month and a half before.
Could you just speak a little louder and repeat what you said, please?
My question is on Digital Gold pilot, what we had done. What I wanted to understand to get some sense that which is. I mean, of course, in the press release you have said that it is the younger generation which is getting hooked on. Initial benefit, saying that, what is the opportunity which you are looking for next two to three years? Or it is again, one more platform which we are trying to engage with the customer?
It is one more platform for recruiting customers and a certain profile of customers, let's say digital-savvy. Many of them young, but not all necessarily young. Certainly digital-savvy customers. And those who would be able to invest in small amounts. You know, INR 100 is the lowest they can go and invest in. It is that profile of customers, and we think it can be a good opportunity. We are also trying to see how big this is, but in the interim we are quite happy about it, and it is continuing. The pilot is continuing and will continue for the next few months before we conclude on how much to scale.
Ajoy, I got that. What I was trying to ask is that is there a limit to which the customer can add the gold quantity on a monthly, daily or yearly or it will continue?
No, it's. There's no limit. It is a customer's choice. They're just holding the gold in a dematerialized format. The gold is being held by them, held for them in trust through a vaulting arrangement, which currently entire thing is managed through SafeGold and there's a separate trustee, so they can hold as much as they want.
We will not have any impact on our balance sheet?
No, it has nothing to do with our balance sheet because we are not even invoicing the gold right now.
Okay.
Right now we are mostly facilitating and providing an interface. All the custodian trusteeship, et cetera, is someone else's balance sheet.
This is in Bangalore?
The vault itself?
Yeah.
It's across, so it's not only one vault, but they have different vaulting
Okay. Just quick word on CaratLane. If you can talk about online, offline. I mean, we have done a fantastic job there. But how do you see near term, once the things start changing, if the consumer traffic is also moving to online back?
I think both online and offline have done very well. Of course, offline has recovered and therefore the growth in offline has been better in quarter two. Online continues to be very strong and powerful, so we are seeing a fairly good balance there. That ratio there is continuing pretty well and good outlook. We are very bullish on CaratLane growth. Hopefully it should continue and we are confident with.
Could you spend a minute on profitability part, how it is shaping up now?
Profitability is good. Gross margins are stable and good. As the scale is going up, the EBIT margin is also there. It is profitable. It has been a profitable quarter for CaratLane, and we had broken even last year, so this year should be growth going forward.
Wonderful. Thank you and all the best.
Yeah. Okay.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments.
Thank you very much, everyone, as always, for the probing questions and continuous support and encouragement. Till we meet again, bye-bye.
Thank you. On behalf of Titan Company Limited, we conclude today's conference call. Thank you all for joining. You may now disconnect your lines.