Higher import costs due to rupee slide trigger strategy tweak.
The rupee’s southward journey, which means costlier imports, is forcing Titan Industries, India’s largest watch manufacturer, to revisit its operational strategy, which has decided to step up its premium play in order to spruce up margins.
Currently, the premium segment is estimated to contribute only 20% towards the revenue pie. The company looks to target watches in the price band of Rs 5,000-8000.
H G Raghunath, CEO of Watches and Accessories, said on Tuesday that even though the company has been in the premium segment, the urgency to sharpen focus has been driven by a realisation that “turnover of Rs 5,000 plus watches is equal to the combined turnover of the rest of the competitors and the premium segment has been growing at over 65% in the last five years”. Some of the big names Titan is pitted against in this space include Diesel, Tommy Hilfiger, Esprit, Police, Timberland and Tissot.
Ask analysts about the shift, and the view is the focus on premiumisation will be a wise move. Bharat Chodda and Dhvani Modi of ICICI Direct, pointed out that the margins have been under strain for some time. “Ebitda dipped 366 bps in the June quarter year on year to 10.3% owing to the impact of rupee depreciation and increased overheads,” they added.
Raghunath thinks the margins are bound to stay sticky as the rupee weakens, but added that the company is taking measures to cushion the impact. “The good part is we have our manufacturing capacities here and it helps in shielding us to some extent from the blow of a falling rupee. Now, we are increasing the manufacturing capacities at several plants and also investing in research and development to reduce dependence on precious metals,” he added.
On top of that, Titan is investing big-time in Coimbatore facility of stainless steel manufacturing and ramping up the plating capacity in the Hosur division.
And for good measure, the company has been scaling down its exposure to water and electricity to cut down overhead costs. .
To be sure, these measures, which come at a time when Titan has been struggling to bolster its volumes, will go a long way in shoring up margins, believe experts.
But the company is upbeat in its assessment, which is gunning for a double-digit volume growth by the end of the year. Ronnie Talati, VP and chief marketing officer, watches division, said the company will widen its retail footprint to achieve this by adding stores and step up spending on marketing and advertisement. He is hopeful of pulling it off by the end of the year.
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