Titan Limited – 2020 Annual report Takeaways

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Fun Fact – Founded in 1984 as a joint venture between Tata Group and Tamilnadu Industrial Development Corporation (TIDCO), Titan Company Limited (Titan) is among India’s most respected lifestyle companies.

They have established leadership positions in the Watches, jewelry, and eyewear categories led by its trusted brands and differentiated customer experience.

They have also successfully forayed into the verticals of Indian Dress Wear and Fragrances, underpinned by a deep understanding of evolving customer preferences.

This is the first letter of C K Venkataraman since succeeding Mr. Bhaskar Bhat (immense contribution to Titan over the past 30 years. Notably, serving at the helm for over 17 years, he has been the architect behind creating a one-of-a-kind institution in the world of business) as the Managing Director on 1st October 2019.

COVID Commentary – “For Titan, with most of our products being discretionary and in the ‘touch-and-feel’ category, sales are likely to be under additional pressure during this period of uncertainty.

Notwithstanding the challenges, we are determined to find ways to become more customer-focused and more efficient. We have implemented stringent safety measures across all our stores, which will help us in reassuring our customers and moving much faster towards normalcy.

We are also accelerating our omnichannel marketing strategy with a renewed focus on e-commerce as customers look to increasingly shop online. Further, we are reimagining customer convenience by offering options such as ‘try-at-home’ to ‘endless aisle’ to video shopping. We also remain focussed on driving relevant product innovations across our different businesses to capture mind and market share.

To explain further, in the Jewellery Division, we are working extensively on creating a strong product portfolio at affordable price points. Smart wearables along with other differentiated collections continue to be a focal point for our Watches and Wearables Division.”

Interesting Facts –

67% of Electricity from Renewable Sources at Manufacturing Plants

47% of the water used across the Company is recycled and lake rejuvenation initiative was undertaken.

44% of gold and 47% of brass used in production is from recycled sources.

The Watches and Wearables Division of the Company recorded revenue of Rs 2,615 crores, a growth of 7.2%. The revenue from Jewellery Division grew by 4.4% touching Rs 16,738 crore. The revenue from Eyewear Division grew by 6.4% to Rs 544 crores. The revenue from other divisions recorded a sale of Rs 171 crores, a growth of 28.2%.

New Businesses, viz. Indian Dress Wear Division and Fragrances and Accessories Division recorded revenue of Rs 117.59 crore, a growth of 46% over the previous year. While the Indian Dress Wear Division grew by 102%, the Fragrances and Accessories Division recorded a growth of 27%.

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During the year, the Company had opted for a lower tax rate of 25.17% by foregoing the tax benefits mainly in the tax-free zones.

With the declaration of the COVID-19 as a pandemic in mid-March 2020, the performance of various Divisions was affected due to store closures consequent upon declaration of national lockdown by the Government.

Jewelry and Eyewear revenue declined whereas Watches & Wearables Division grew marginally by 2%.

Lower sales and mark to market deposit pertaining to gold hedging transactions with the Multi Commodity Exchange of India Limited resulted in substantial gross short term borrowing at the end of the year.

The year witnessed an aggressive expansion of the Company’s retail network. As on 31st March 2020, the Company had 1,739 stores, with over 2.27 million square feet of retail space delivering a retail turnover of over ` 20,000 crores.

Watches & Wearables Business: The non-smart segment of watches continued to face headwinds in markets across the globe in the year 2019 and since January 2020, the COVID-19 global pandemic caused a significant slump in business during the last quarter of the previous year.

The last quarter of the previous year saw a retail decline of >50% in most global corridor cities. Key commercial hubs like Singapore, Ho Chi Minh City, Bangkok, and Dubai reported their worst tourist traffic numbers since 9/11.

The watch category’s premier event, Basel Watch Fair 2020 was canceled for health-safety reasons. COVID-19’s impact on tourism, overall business, and retail, in particular, is expected to last through the year 2020. 50% of the Company watches international business is dependent on the Middle East markets. UAE, the Company’s largest market outside of India, declined by about 11% but the business managed to outperform competition owing to a better retail network.

Jewelry Business: During the year under report, the Company’s jewelry business in the GCC (Gulf Cooperation Council) region was studied in detail owing to its similarity to India and after careful study, Dubai was chosen to pilot the international launch of Tanishq.

Two legal entities were incorporated in this regard and necessary tie-ups like banking, logistics, etc. have also been put in place to enable the start of operations with the first Tanishq store in the first quarter of the current financial year subject to the normalcy of the COVID-19 situation.

During the year under review, the Company had invested Rs 31 crore in the purchase of an additional equity stake in CaratLane Trading Private Limited (CaratLane) taking its holding to 72.3%.

During the year 2019-20, CaratLane registered a turnover of Rs 621.23 crores (previous year: Rs 416.39 crore), and the loss amounted to Rs 27.27 crore against the previous year’s figures (loss) of Rs 46.13 crores.

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Further, the Company has granted a loan of Rs 1.95 crore to Titan Holdings International FZCO, Dubai, a wholly-owned subsidiary of the Company

The Company holds a 49% equity stake in Montblanc India Retail Private Limited (Montblanc), a joint venture entered into with Montblanc Services B.V., the Netherlands for the operation of retail boutiques in India for Montblanc products.

Montblanc registered a turnover of ` 57.45 crores and the loss amounted to Rs 4.87 crores. During the year, the Company invested an additional amount of ` 7.74 crores through a rights issue in Montblanc.

The percentage increase in the median remuneration of employees in the financial year: 10.5%

The number of permanent employees on the rolls of the Company: 7,550

Manufacturing of Watches and Wearables Division has successfully implemented innovations, adopted technologies in the following areas, leading to higher productivity, safety, ergonomics, lead time reduction, and improved quality –

1.  Twin-wire EDM machine, technology with an Integrated Online Inspection System inducted for tool manufacturing.
2.  Robotic automation in back cover forming presses
3.  Laser cutting technology for Flat parts development for functional proto development.
4.  Commissioning of an online Micro motor test System developed indigenously with Swiss expertise.
5.  Software for watch movement mechanisms design simulation.
6.  3D printing technology is currently widely used for components and tooling development.
7.  IIoT (Industrial Internet of Things) initiative: Installation and commissioning of an online Performance Monitoring System to optimize the operating performance of energy-intensive manufacturing and service equipment.

Jewelry New Innovations –
Smart Warehouse Automation commissioned in Hosur for faster delivery. It will also be implemented at other important fulfillment centers across the country.
Stone Play Detector Automation deployed for detecting loosely mounted diamonds in the Jewellery Product towards improving product quality.

Jewelry manufacturing division has invested in multiple technologies for ensuring Gold and diamond authenticity.

Management Discussion & Analysis (MDA)

Macroeconomic Overview The year 2019-20 was a challenging one. The slowdown in the growth of the Indian economy, a significant rise in the gold prices and the onset of the COVID-19 pandemic and consequent lockdown in the month of March 2020, impacted the overall growth of the Company. Consumer sentiment was generally lower on account of these.

The Jewellery Division was particularly hit towards the end of the first quarter and substantially in the second quarter of the year due to a sharp rise in gold prices, with consumers adopting a wait and watch approach to timing their purchases of gold jewelry.

Growth picked up well in the third quarter and the first two months of the fourth quarter. However, with the advent of COVID-19, activity started slowing down sharply in March and the Company had to shut its stores for most of the second half of March.

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The economic slowdown did not impact the Watches Division as much, and new categories and channels like wearables and e-commerce continued to do well. The Eyewear Division did well in the first half of the year but declined sharply in the second half, affected by the performance in the distribution channels.

Fragrances grew well at 24% and the year witnessed the launch of perfumes under the Fastrack brand at affordable price points. Network roll out in the Indian dress wear business grew substantially with 12 stores now operational in 5 major cities.

The Watches and Wearables Division had undertaken the journey of transforming itself in the last three years as it faced rapid tectonic shifts enabled by technology.

A comprehensive omnichannel play to leverage the large network of retail stores will be a strong driver of consumers to the Company’s brands and stores.

The Fragrance industry size is estimated to be ~Rs 4,300 crores with Deodorants around Rs 3,000-3,100 crore i.e., 70% of the industry and fine fragrances to be around Rs 1,200 crore

Fastrack Perfumes: A new segment of consumers was tapped with the launch of Fastrack Perfumes at Rs 845. This strengthens the Company’s play in the mass segment (Rs 500-3,000).

Sarees comprised 40% of the women’s ethnic wear market, growing at a CAGR of 5%-6% of which an estimated  15%-20% is organized play.


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Cover Image Source: The Sunday Guardian

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JST Investments is a Mumbai-based investment firm that believes in long-term wealth creation. It's a brainchild of Aditya Kondawar, Aditya Shah, and Anish Moonka.
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