Indian gold demand has been historically driven by the wedding and festive related gifting tradition. The wedding season and Akshaya Tritiya in Q2CY17 were strong. Indian gold imports in CY17 (till August) have rebounded sharply by 158% to 617 tonnes. The jewellery sector has seen a sharp revival after a weak 2016 in which Indian gold demand had declined 22% to 514 tonnes on account of various issues like jewellery sector strike and demonetisation.
With consumer sentiment improving, Indian jewellery demand is likely to continue its uptrend in the ensuing festive season. Also, major organised players are expanding their retail presence to capture a higher share of the market. Events like demonetisation and GST implementation have increased the cost of compliance for unorganised players and created a level playing field for organised players enabling them to capture a higher market share.
Titan Company is Tata group’s largest consumer company. The share price of Titan Company has been in a strong uptrend.
Titan Company is a major player in the organized jewellery market with a market share of 5% The company has a pan-India retail presence. This is coupled with a strong bouquet of brands with a strong brand recall, which will enable it to grow at a rapid pace and gain market share and benefit from the shift in demand from unorganized to organised segment. Also, its presence in other aspirational business segments like watches and eyewear would aid revenue growth, going ahead.
Titan’s jewellery segment witnessed robust revenue growth of 55.9% in Q1FY18 driven by 51% like to like (LTL) sales growth from Tanishq. The factors, which contributed to exceptional growth were:
- Successful Akshaya Tritiya period,
- Successful gold exchange programme,
- Advancement of sales on account of introduction of GST ( Rs 250 crore)
- Favorable base of Q1FY17 (jewelers strike that continued till mid-April 2016).
The traction in the jewellery segment is expected to continue on the back of introduction of new collections with higher focus on wedding jewellery segment. In addition, with the rollout of GST, Titan would be a beneficiary of the shift from unorganized to organized players. The revenues are expected to grow at 21% CAGR in FY17-19E mainly driven by growth in the jewellery segment.
Titan has reduced making charges across its jewellery segment in a bid to garner higher market share. Now its making charges are in line with competitors or marginally higher than them. The making charges had been lowered to make the products accessible to a larger set of customers who were earlier unable to buy the product owing to the perception of it being costly compared to other competitors. The management indicated that the aspiration to adorn Tanishq brand has increased among consumers. The company is getting new customers, which could aid future growth.
GST would be positive for organized players like Titan as higher compliance cost for unorganized players would create a level playing field. This could lead to market share gains for Titan. Tanishq continues to focus on the wedding jewellery segment and expects the share in the product mix to improve from the current 22% in FY17 to 40% by FY21. In addition, entry into high value studded jewellery would aid operating margins.
Let Warren Buffett say whatever about gold, we indians just love to have it :). Also, population following whatever he says is limited in comparison to our overall population. Therefore, gold related companies will always provide excellent investment opportunities, at least in the foreseeable future.