Titan springs back

Centered on the themes of Zen, nature and yoga, the Tanishq store in Schaumburg, a suburb of Chicago, US, was meant to be Titan Industries' shot at the $60-billion US jewellery market. But after a few months of acclaim for its customer-friendly layout and competitive prices, this store— and another one in New Jersey— had to shut down.

Titan was not at fault: who was to know then that an August 2008 store opening would spell disaster? Titan's US plans (another 25 Tanishq stores) collapsed as the global financial meltdown bit into consumer spending in the world's biggest economy. Suddenly, India's largest watchmaker and speciality retailer was scrambling to prevent a collapse even back home after years of rapid growth. Watches, jewellery and eyewear— every business that Titan had entered got bogged down.

But a year later, after three consecutive quarters of declining revenues, Titan is back on the growth track, with revenues growing 22.2 per cent to top $1 billion for the first time. As the economy recovers, Titan has set itself a new target: $2.5 billion in revenues by 2014.

The optimism is based on hard facts: In the fourth quarter of fiscal 2009-10, Titan Industries reported a revenue growth of nearly 49 per cent year-on-year, while operating margins rose to 7.7 per cent overall. "The slowdown was only a temporary fall in growth for us and we saw no negative growth in any of our businesses," says Bhaskar Bhat, Titan's Managing Director.

But Bhat, having seen the growth rate of 15-20 per cent halved, is not taking any chances. So the company's back to the drawing board, the Design Studio at its Bangalore headquarters. Designers are trying out new materials, re-inventing longforgotten brands and even figuring out branded prescription eyewear, Titan's latest initiative.

Distant Vision
Titan had expected to have a nationwide chain of 150-160 Eye+ stores, as it calls its prescription eyewear business, by this year. Again, while the March 2007 launch went off fine, there was trouble down the road. So today it has just 80 Eye+ stores, each only 500-1,000 sq.ft. against the 1,500-2,000 sq.ft. initially planned. But its sights are focussed on some good numbers.

"There are 300 million people in India who require vision correction, and we're perhaps the largest prescription eyewear firm around, with some 25 brands under one roof," claims Ravi Kant, COO, Eye Wear, Titan. Echoes Bhat, the MD: "We think sales for eyewear can grow 20-25 per cent per year." Insiders say eyewear fetches Rs 96 crore, a fraction of Titan's revenues (Titan does not officially disclose numbers for this business separately).

Kant is using lessons from the watches business by positioning prescription eyewear as fashion accessories, rather than plain old spectacles. The Eye+ stores package the services of an optometrist, spectacle frames priced at Rs 500-30,000 a piece, and even the lenses. "Eighty per cent of the market is dominated by unorganised players and smaller chains," says Kant. "Our challenge is to woo these customers away from this segment."

Going for Gold
Then there's jewellery, which has come to account for over 70 per cent of Titan's revenues. The business was battered not just by the slowdown but by wild fluctuations in gold prices last year. However, in the last three-four months, gold prices have stabilised somewhat.

According to C.K. Venkatraman, COO of Tanishq, the accent has been on improving the selling capabilities of its store executives to lure people away from traditional jewellers. "We want to focus on studded (diamond) jewellery, which has three times the margins of conventional gold jewellery," says Bhat.

Analysts say Titan has many things working in its favour at Tanishq. The business has "unparalleled brand equity and excellence in execution and strategy," wrote analysts Sanjay Singh and Pratik Biyani at ICICI Securities, who have initiated coverage on Titan Industries, with a target price of Rs 2,576, a premium of at least one-sixth over the share price on the BSE in mid-May.

"Increased focus on high-margin studded jewellery and higher operating leverage are expected to improve margins— we expect PBIT in jewellery to report a strong 39 per cent" compound annual growth between FY10 and FY12. PBIT refers to profit before interest and tax. With gold quality getting standardised, workmanship improving and jewellery makers chasing consumers to large-format retail stores, Tanishq is not alone offering such attractions: there's Rajesh Exports, India's largest gold-jewellery maker, and brands such as Gili, Asmi and Nakshatra.

Some of the improvement in margins may come from Titan's new Zoya premium jewellery outlets, with one store each in Delhi and Mumbai and a further six planned in three years. "The jewellery segment also witnessed a surge in PBIT margins by around 350 basis points to 9.3 per cent on a y-o-y basis," says an Angel Securities research note. For Tanishq, the biggest threat will perhaps come from Rajesh Exports, which acquired Oyzterbay four years ago and, after a lull, is once again expanding.

At the other end, Titan has its Gold Plus stores to meet the plain-vanilla gold jewellery needs of semi-urban and rural buyers, who account for 60 per cent of the total jewellery market. Tanishq is also trying to steer away from the seasonality of wedding and festive jewellery, with new ranges such as Blush for young adults. "This is a Rs 80,000-crore industry and the organised sector accounts for less than 4 per cent, so we have scope for rapid growth," says Venkatraman.

Here a Brand, There a Brand...
Titan has become synonymous with watches, having captured 60 per cent of the organised market. But competition is increasing, and there are 60 brands today just in this segment, which itself is a sliver of India's total watch market of 46 million units a year. Claims V.D. Wadhwa, Managing Director of Timex India, the second-largest in India's market: "We are technologically superior to Titan and we have products in both the premium and mid-market segments, which are growing the fastest."

Wadhwa does not see Titan's brand recall as an obstacle. "Titan may have better brand recall after 25 years in the Indian market, but with the recent launches of Ferragamo and Nautica in the premium market and at least two more brands likely to come from our global stable, we expect to strongly challenge Titan," he says.

By value, the organised sector accounts for 60 per cent of the watch industry. Titan is positioning itself in all the segments, right up from economy to youth, kids and luxury. It is already strong in the entry level with its Sonata range. "Half the watch buyers do so for the first time," says Titan watches COO Harish Bhat. "They buy Sonata for its reliability, range and design."

For the luxury segment, it is setting up a chain of multi-brand stores called Helios. The first outlet broke even in its first year and 10-15 additions are planned next year. "We grew this business 12 per cent last year at a time when the industry grew just 6 per cent," says Bhat of Titan watches. "We launched Helios a year ago and now we plan to have 14-15 outlets nationwide." From just three brands five years ago (Titan, Sonata and Tanishq watches), it has around 10 brands, including its kids' watches label and Helios, today.

Brand consultant Harish Bijoor points out that Titan, starting with one strong mother brand, has successfully devised recognisable subbrands to target viable niches. "In perhaps two years, it will need to revisit its brand portfolio and reconsider which are working for it and those that need to be wound down or re-energised," says Bijoor.

For now, Titan isn't holding back on its brand spend: it aims to spend over Rs 1,000 crore in the next five years on sales, marketing and branding. Perhaps, its most visible sub-brand is Fast Track, which has grown beyond watches to fashion accessories. The aim is to take the number of exclusive stores from 24 now to a 100 in a year.

Analysts are bullish on Titan's strategy. Increase in penetration and the shift of buyers to branded watches will ensure a volume growth of at least 6-8 per cent, according to ICICI Securities. Watch sales and PBIT will expand annually at an average of 15.6 per cent and 16.6 per cent from fy10-12, it noted.

As the recovery gains strength, Titan is not forgetting its overseas market, which fetches it Rs 100 crore today from its presence in 26 countries. Bhat, the MD, claims it is among the top three brands in the Persian Gulf. But, with the Chicago setback in mind, the overseas plans have been tweaked: rather than return to mature markets, Titan will focus on emerging markets, where brands and watch penetration is low, and because of the "sheer size of the opportunity".

So the next step: South Africa, followed by its neighbours. It has had mixed luck in exports. While it slipped up in Dubai because of the global slowdown, it is still bullish on Yemen, Qatar and Saudi Arabia. At the same time, it is among the top five brands in Vietnam. With all points of the compass covered in the watches business, and its jewellery brand facing a huge market, Titan seems better prepared for growth without hiccups this time.