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Titan Company Ltd
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Ladies and gentlemen, good day, and welcome to the Titan Company Limited Q4 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. C. K. Venkataraman, Managing Director, Titan Company Limited. Thank you, and over to you, Mr. Venkataraman.
Thank you very much, and good evening to everyone on the call. It was a very satisfying quarter, Q4 FY '23. We passed many milestones through the quarter, INR 30,000 crore milestone for jewellery, INR 5,000 crore for watches & wearables, INR 1,000 crores for eyecare, INR 500 crores for international business, INR 200 crores for the Perfumes business. All-in-all, a very, very satisfying quarter.All the mature businesses continuing to grow at a very satisfactory and ambitious rate, all the emerging businesses growing at a scorching pace, including the women's bags and the Taneira business establishing themselves strongly. Internationally becoming very prominent in the NRI/PIO space, in the GCC, and in the United States. All-in-all, a fantastic quarter.And I would like to thank all the employees of Titan Company, TEAL, CaratLane, and all other subsidiaries, as well as all our partners in the manufacturing side, their employees, all the partners in the retail and distribution side and their employees, and all other partners who work in some way or the other in support of Titan Company and its subsidiaries for continuing to deliver exceptional standards in customer experience, innovation, operational excellence, and through all that, to deliver great sales and financial growth, profit growth. And of course, my thanks to all of you on the call, as always, challenging us, wishing us well, encouraging us, and asking the sharp questions that you ask all the time.So my part in this part of the call is concluding, and we can move into the Q&A.
[Operator Instructions] First question is from the line of Avi Mehta from Macquarie.
Am I audible?
Yes, Avi.
Yes. Sir, my first question was on the jewellery side. Has the moderation seen in customer demand in March, has that kind of -- because of the sharp gold price rise, has that waned off in April? And could you give us some sense on how the growth trends are behaving?
Avi, Ajoy here. You're right, March saw a softening and it continued into the first half of April. I think gold price volatility has usually kept many people on the fence. But as soon as the festive period started and the offer started for Akshaya Tritiya, we saw a lot of people come into the market, and thereafter, it was very good.So I think the volatility piece in demand linked to gold price volatility continues. So when the festive season and wedding season and, let's say, there's opportunities and occasions to buy, it's very good. And then if there is some nervousness, it tends to fall. But overall, I would say it was a very good Akshaya Tritiya for us. And it's in line with what we think, what our plans are for the year.
And those would be -- sir, would you be able to share some plans for the year? What are your thoughts? Any numbers over there?
No, I don't think we can share numbers. But you guys are well aware of our longer-term plan. And in some ways, our annual plans are pegged to the long-term plan that we have set out during the Investor Day. And in that context, therefore, we are on line with that.
Perfect. Sir, on -- there is this change in the franchisee rates which was carried out during the quarter. If you could give us some sense on what exactly was it? And give us an idea of what is the impact we should kind of expect on margins? Will they improve?
So actually, this is a very operational matter. Terms of trade between principal and the franchisees are typically to ensure healthy returns and good profitability for the franchisee. Just so that all of us are clear, when it comes to the jewellery and Tanishq franchisees, we have best-in-class returns. And in fact, people make exceptionally good profits and returns on investment and -- so much so that most of the franchisees want a second, third, fourth, fifth store. And we are unable to fulfill their desires because we have a -- even they are happy to take the next store 100 kilometers away or 200 kilometers away in another city.
10,000 kilometers away.
Yes, even international.
20,000 kilometers.
Yes. So we've actually had huge requests from all our franchisee community to give higher things. So just to share with you, best-in-class returns across all forms of retail that might be there, and I won't be surprised if it's across the world. This old structure was about 15 years old. And the nature, scale, product mix of the business has significantly changed in the last 15 years. The slabs have changed, everything has changed. So we needed to align and in a way update it.And the other important piece is the product mix, which is profitable, which works well for the company as well as works well for the franchisees needs to be aligned in the same way so that all of us are firing in the same direction. And that is something which we wanted to structurally change. We also wanted to introduce new categories of complexities of products, because we are seeing that opportunity to, in a way, gain in different complexities of gold. So many structural changes, all driven towards aligning growth and profitable growth for both the associate and us.Also, during the last couple of years, the division has invested significantly in both inventory as well as gold rates to deliver terrific growth. And this investment has come significantly from the organization as well. So in a way, this was kind of a restructuring. Absolutely very limited impact in terms of profitability to us. In fact, many franchisees have gained and some may have lost. But actually we don't know, because the mix they will sell in the current year or in the next year will determine the exact gains or losses. And in our estimate, many of them will actually gain. And there is no significant impact on the company in terms of sheer margins or whatever. So nothing much. It's an operational piece, actually.
So if I may, sir, summarize or paraphrase, the way it is, this is to modify the incentives to move product mix upwards and should not result in any impact to the franchisee profitability. Would that be a fair statement to make, sir?
It's difficult to conclude because we have some 200-odd franchises in the system. So some may lose depending on what mix they sell and many others may gain. Okay. So it's very difficult to conclude it in one line. And in any case, we've been a very fair partner. So even if somebody actually loses, we will invest a lot more in ensuring growth. So that's not something we worry about.
Got it, sir. Got it, sir. And sir, with your permission, just one last thing on the watch side. We saw very strong growth, but margins were below the range that we had kind of -- we're looking at of 13% to 14%. Would you revisit this target? Or could you kind of share us how do you see this internally?
So the strong revenue growth was also because of a lot of investments, et cetera. And there were some actuarial calculations which came and hit our overall profits. But we are quite satisfied with the margin. And it is in line with what I have indicated in previous investor calls also that margin for the watches business in this year, for example, is likely to be in the 12% to 13%. So it is in that range.
The next question is from the line of Nitin Jain from Fairview Investment.
Hello. Yes. Am I audible?
Yes, Nitin.
Yes. So thank you for the opportunity. My first question is on the jewellery business. So some of your national competitors like Kalyan, Malabar, they have moved to one nation, one gold price policy. So does that lead to any change in the gold rate premium that Tanishq has been charging historically? And what would be the impact on EBIT margins going forward?And my next question is on the dividend payout. So while the quantum has increased this year, the payout ratio has actually declined. So any comments on that, please?
So on the one nation, one gold rate, actually, this is now a 16-month-old story. Malabar had started it around Diwali the year before, last in FY '22. And thereafter, many players, local players, maybe not one, but lowest gold rate offering. That is -- actually, for the customer, it's been the lowest gold rate offering is that is more relevant.The one India, one gold rate is more, let's say, a broader statement.Kalyan also responded in many markets in that way and has eventually figured out that he wants to stick to one because the Kerala Jewellers Association had some kind of conversation and for some reason their gold rates were much lower than the rest of the market.We have chosen not to go down that path. We have instead looked at what is relevant competitors in different markets. Historically, we have seen there's a wide dispersion of gold rates across the country. Local jewellery associations actually declare the gold rate and everybody plays according to that. And therefore, we have chosen to optimize along those routes.Now, some of those are getting rationalized over a period of time. And we are in a way ensuring that we remain competitive market-by-market. So consequently, as mentioned in previous investor calls, we have, therefore, seen a gradual reduction in the gold rate markup side of the gold jewellery margin. But we've been managing it through product mix, through making charges, and through other initiatives to try and ensure that we still continue to live up to good GCs, and therefore, good EBIT margins. That process is on.So I won't be able to comment much on GCs further. We have already taken fair amounts of corrections in the past and yet been able to deliver the EBIT margin that we've been committing to, and we still stay by that. So irrespective of the competitive intensity, we are expecting to sustain our EBIT margins.We are not too worried about any further dilution even if there is here and there - mix related and product engineering related and many other operating leverage related initiatives are in place to ensure that we continue to deliver healthy margins in this business.
Yes. Nitin, Ashok here. Our dividend policy suggests that we will maintain a dividend payout between a band of 25% to 40%. And this year dividend declaration, while it is substantially increased over the last 2 years, is about 26.6% of the profit margin. And Board considers every aspect of our requirement and growth and what kind of investment plans we have and what is the cash balance on the balance sheet, et cetera, and then accordingly decide a number which is within the band. So it's a decision keeping all these considerations in mind.
The next question is from the line of Percy Panthaki from IIFL.
My question is for Ajoy. So Ajoy, congrats this quarter. You've done 19% same-store sales growth in the jewellery division. My question is that a large part of this 19% is coming because there is a big inflation in the gold price. Let's say, the gold price going ahead were to stabilize and at some point of time the Y-o-Y gold price inflation if it comes close to 0, in that kind of a scenario what would be sort of normal or stereotypical target SSSG that you would sort of tend to have in a flat gold price scenario? That's my first question.
Yes. We've had this conversation a couple of times, once in person and a couple of times on the call. So we would still like to suggest that for us volume is not linked to grammage, and therefore, gold price inflation is equal to -- the way we look at it is number of customers and the average ticket size. Just because there's a 19% like-to-like growth and even if there was technically a very high gold price related inflation, it doesn't translate it exactly that way.Just to give you a sense, if I look at 19% same-store growth in value, we have had an overall buyer growth of around close to 16%. On same-store that number would be closer to maybe 10%, 11%, okay? Typically, if gold price was not to inflate, there's nothing to say that we can't continue to gain number of customers, because we continue to gain a significant number of new customers. Even in quarter 4, our new to repeat is 50-50. So we've grown pretty equally in both segments.So gold price inflation may be helping in ticket size, but it's not necessarily so. People also enrich in terms of product mix. So as long as we are continuing to get more customers and there's customer growth for every store, especially same-store growth -- and then there's a ticket size increase, which may happen due to product mix enrichment, not just only because of grammage, but the kind of products they buy, studded ratios and more complex products, et cetera.We are not worried about this. Therefore, same-store growth -- it is our endeavor we should continue to deliver double-digit same-store growth. That's how every store and business can really prosper. And we are targeting certainly much more than this double-digit or whatever. We are targeting good double-digit growth going forward for same-stores.
Right. My next question...
So [ it is not ] gold price for us, just to clarify it.
Got it. Got it. My next question is on the retail area addition in jewellery, the square feet. What percentage of addition are you planning annually for FY '24 and FY '25?
Okay. I don't have a square footage number, but I can just share with you that we've added -- if I just look at quarter 4, we've added 11 new stores, but we've also significantly expanded existing 10 stores. And when I say significant expansion of these 10 stores, it is either 25%, 30% increase in the retail area, or, on absolute level, at least 1,500 to 2,000 square feet. So effectively, if I look at both these figures together, we seem to have added a lot more square footage than would be evident from sheer number of stores.We have quite a few stores even in the current year where we are looking at significant retail expansion. I think another 15, 20 stores will see significant retail expansion. In addition to that, we expect to certainly add 40 plus new stores. The opportunity is not the limit for us here. Our ability to execute, find the right places, ensuring they are built to suit and everything is working well. So the opportunity is much larger than that, but typically we have set out around 40 stores.The opportunity space over the next 2 years if you ask me could be 100 new stores as well, but a lot depends on how much we are able to execute. Historically, we seem to have been able to execute 30 to 40 in a year. But in addition to that, we will do this retail expansion program as well, which we have commenced strongly from the last 12 months. I hope that answers. I don't have a square footage percentage to give to you.
Yes, that's very useful, Ajoy. Last question on eyewear. So margins -- even if I adjust for that INR 8 crores one-time, margins are sort of in the mid single digits. I thought we have this model now very well established, where we would be doing low to mid-teens kind of EBITDA margin in eyewear. So what really went wrong this quarter?
Percy, this is Saumen. Actually, if you look at the last 6, 7 quarters, you would have realized that what we said mid-teens, I think, we have held on to this more or less, except for last year quarter 4, and in a similar case, it's this year quarter 4.Just to spend a minute on the quarter 4. We had a very good month of January, in fact, the second best in our history. But the second half of quarter 4 slowed down, and it in a way sort of affected sale. A few other things also happened simultaneously.We needed to clean up a few things. For example, in the last 2, 3 years many of our franchise stores accumulated stock, especially lenses, which are kind of supposed to be used. But this color we had to take back. Then in our production system also, we needed to make sure that there isn't any unnecessary stock pile up, because we are making a change in our product portfolio, so we needed to give a month gap really to sort of down stock a bit so that new portfolio product can go to the trade channel with a restructured margin, so that we actually have a greater level of penetration. All that has caused a sale compression to a level over 70% of what we are projecting. So that's one side of the story.And other side is GCC actually held. On the cost front, there are a few annualized figures came in, whether it is employee-related actuarial that was mentioned once. We also opened, I think, 18, 19 company stores, which were not budgeted earlier, so as a result both on the rent front in quarter 2, and mostly in quarter 3 and quarter 4, as a result both in rent as well as employee cost you would have seen the impact of it.Obviously, we'll gain it from this addition significantly in the coming year both in the margin side and otherwise and apart from that we had to shut down about 22 stores inquarter 4, which is not really working out and few stores that are happened in the endof quarter 3.All put together, there are few one-time additional costs that has come. And this apart, we also had to -- we decided that it is appropriate to sort of share some of our wealth that we have created with our franchisee, who lived with us in the most difficult times of last year, that is the INR 8 crores that we have spent. So all put together, there is a one-time impact in the PBT, but if I adjust for all these things, and if I look at what we did to make FY '24 to have a great clean beginning, I think, thankfully, we are seeing it in the month of April. We had our best month in our history.
Next question is from the line of Jay Doshi from Kotak.
My first question is on margins. Even adjusted for one-offs that you had in the first half of this year, you've ended the year with a little over 13% jewellery EBIT margin for standalone business. And whatever I gathered from the earlier response is that gold rate is not a concern anymore. So I assume that there is no further sort of margin pressure. Given that backdrop, are you confident of maintaining margins at similar levels in FY '24, assuming the growth shapes up on your expected lines?
Hi, Jay. See, first of all, I think these margins vary by quarter based on the mix. So…
I was referring to full year, sir. Sorry, my bad. I was referring to FY '22 versus FY '23.
You are referring to full year FY '23.
Yes, sir.
Right. [Audio Gap] And that won't be there next year. Also, there is a certain element of stock gains on account of diamond inventory, which is also sitting in this. So this 13.7% has the benefit of almost about a percentage between these 2 elements, both of which we don't anticipate to see in the next year.So in a way, corrected or normalized which adjusted, whichever we say it will come between that 12.5% to 13%, which we've been talking about. And we expect to sustain these given competitive intensity, given the growth opportunities in different categories and markets in which we are growing.
And one more, just a follow-up on your earlier comment. So the demand trends over the past few days, does it give you confidence that the softness that you had called out in the quarter and business update is now behind us? And hopefully, that this trajectory should healthy growth should continue going forward?
Yes. I mean if I think about it, volatility is here to stay. We've seen it now over the last 3 or 4 quarters. It's almost -- when they're going as good is really good and then when there is no reason people kind of hold back, if gold prices spike, there is some degree of business, et cetera. But we've kind of learned to play that game, and we think we are broadly on course for what we see. It's difficult to give you an accurate view because, as I said, first half of April was dull, but second half was fantastic. May and June promises to be good because of there are a lot of good wedding dates. So yes, we are hopeful that we should be able to deliver to the plans we've laid out, volatility, notwithstanding.
Understood. Thank you so much and wish you a very best for FY '24.
The next question is from the line of Manoj Menon from ICICI Securities.
Some of the questions which I have -- I got some part answers. So allow me to this is repeat actually. Just the first thing is on the 15-odd percent buyer growth, 10% customer growth at the same-store level. Could you help us to have some time series understanding of these numbers, let's say, over the last decade?
Time series over the last decade.
Yes, what I mean is this 10% would be -- would it call it in the top quartile, bottom quartile, mid-quartile in terms of your own historical customer growth numbers?
Actually, on the call, Manoj, even I don't have the for the last decade like that. But we can -- we'll come back to you.
Yes. And also, Manoj, the other piece is, this is an average figure across so many stores, okay? If you look at it, newer stores, we'll have much better same-store growth until they stabilize. But if you ask me a 10% customer growth for a mature store, I would be very happy. I mean, whether top-quartile or no, I don't know which decile, which quarter, I don't know. But generally, we'll be happy, but we have made us think. We'll think about the data and come back
Sir, the only -- the reason I asked because based on historical understanding, let's say, your retention power is very, very high of the customer. So it essentially means that when you have reported a new consumer of this magnitude, it would be fair to say that the customer, so it did actually effects may be very positively. We'll have a conversation separately. Sir, secondly, on the gold price premium bit, we've also done some primary research on it. And look, I think is it fair to say that with all the discussions about, let's say, you having a nuanced approach competition playing the price card, et cetera. Is it fair to say that there is already an equilibrium, which exists because end of the day, your 20% growth is with this, let's say, "headwind."
Yes. I mean you could say that because our growth -- the competitive intensity on gold rate and pricing has been pretty intense over the last 15 to 18 months. So to some extent, you can say there is equilibrium, whether it will intensify further, don't know, I can't say. By and large, no. And just wanted to clarify on the previous one, when we talk about customer growth or buyer growth of 10%, it is not all are not new customers, many of them will be repeat and many will be new. It may -- the ratio will vary. So it's just.
We're not acquiring 10% on the total base.
On the new base, we may be acquiring 10% more.
Yes. I mean, new to repeat, growth are the same. In the sense, we are still getting 50% of our contribution on the overall chain from new customers and 50% from repeat. That percentage will vary based on older store and newer store and all that is what Venkat trying to say.
Secondly, on the recycled gold or the gold exchanges has been stable at around 40-odd percent for a while. And I do recall you are dialed up or rather you used this to dial up, let's say, the counter customer creates a low manage product, et cetera. The context, what I'm trying to understand is, do you think directionally, this should go to 50% over the next few years? Or do you think it can -- which direction I should take it stable, up, down?
So it's been pretty stable for us around between 30% to 33% has been the contribution of Gold Exchange, which is non-Tanishq gold and about 9% to 10% is the Tanishq exchange. We are actually seeing a correlation between exchange gold and wedding. And we are trying to use that lever to further increase the excitement around wedding. Therefore, we think it should go up. But whether it is going to come dramatically, we don't know. But certainly, we think it will be greater
The more we are able to increase the share of the gold exchange program, the GEP, actually, it will push the growth of the brand. because the size of the exchange, the extent of upselling that happens with -- when people discover the value of Tanishq exchange itself as well as the products and all that, the upsell potential is also high. So there is a good correlation between the increase in the share of exchange and the growth of the brand in total.So we will continue to push that, but it's a very complex final thing to actually happen. And therefore, the result, we know only when we actually see it
Now the only reason I asked because at this rate of 40%, because there is a cost aspect also there because you're buying and selling gold at the same price versus selling on cash, which will help you get that extra bit of, let's say, brand premium, okay.So the third, and if I may, just on one. Ajoy, you mentioned about the, let's say, focusing again or rather even more doubling down on the wedding part of the business. Where do you put the inventory at the store at this point in general? Is it optimal? Or do you think there is a requirement to, let's say, work with a slightly lesser turn or higher inventory for you to drive this wedding business?
You're right. Wedding business requires us more inventory, especially because it is so regional and optimizing that doesn't become easy. And the more we go deeper, which we are already quite deep in many markets. So in general, given what is required, it is turned dilutive. And we believe that we have not yet reached the optimal. Yes, wedding is hardly contributes to around 20% of our business. So there is scope, and we are, in fact, doing it selectively in select communities and select markets and seeing the result of that and then progressing to the next set of communities and markets, and therefore, we are phasing it and learning along the way. But definitely, it is -- it requires a little bit more inventory, whichever community or market we choose to go deeper in.
[Operator Instructions] The next question is from the line of Tejas Shah from Spark Capital.
Sir, a couple of questions, both pertains to jewellery. So first, could you please provide a revenue share of wedding jewellery for fiscal '23? And considering the backlog of weddings that occurred during F '23, what is your outlook for the wedding calendar for FY '24?
Okay. So for the year FY '23, weddings have been actually a relative underperformance. It's around 19% of the total jewellery that we have sold compared to 20% last year and actually 20% has been steady. And this is largely linked to quarter 1 of FY '23, not really hiring as well for wedding and we had to pivot towards other product mix.In the second half, wedding…
And then would we have lost market share for wedding jewellery?
I'm not so sure because we've gained overall market share. And therefore, internal contributions may not give you a better picture. In fact, I would believe we may have either sustained or marginal gain because in certain markets, we have seen good growth. And in those markets, we get actually decent wedding share. So I wouldn't say we've lost share. But I would say the scope to grow much faster is there, but the opportunity in FY '24, certainly, we've taken a much more aggressive growth target on wedding, not just for this year, but over the next 3, 4 years.And therefore, we hope to gain further we are, as I said, investing in select markets and select communities to dial it up even further, including exchange, et cetera, besides inventory. So right now, we would say this year was a percentage lower in contribution. We would like it to be a couple of percentage points higher in the coming year.
And sir, how is the wedding calendar to think for FY '24?
So far, so good quarter 1 is certainly looking good. And H2 is always reasonably good because there's also a lot of NRI weddings, a lot of metro weddings, et cetera. So far, the calendar is looking good. And quarter 1 is always a little bit of a googlie, because it's very heavily dependent on these dates, specifically because a lot of rural wedding, et cetera, is there.
Sure. And sir second and last question. Sir, if you can share some insight of the profile of the new customers we are recruiting as in which region, it will be higher or in which category they normally get recruited wedding stated or low-end diamonds.
Regionally, I don't think I can share because a lot depends on the expansion across different regions. The newer stores also gives us a lot of new customers. But typically, we tend to get new customers in the sub INR 50,000 price band or sub INR 1 lakh because gold prices have gone up.Secondly, we get a lot of new customers in gold, because we are gaining share from other players. And typically, they could be buying gold from there. And the studded ratio is very low for other players. Off-late, we are also seeing a lot of new customer growth in the sub-50,000 both for Tanishq, for Mia and for CaratLane, because there's an emergence of a younger audience who is buying fine jewellery. So that is more in the last maybe 1 year, it's a little more prominent. But typically, yes, it's price band and more gold, if you would ask me, wedding, new wedding buyers are rare, though not entirely absent, but the median is sitting in the daily wear category.
The next question is from the line of Amit Sachdeva from HSBC.
So my question is for Ajoy. I see that bullion sales is in this quarter was quite large, nearly 50% of the full year bullion sales, but full year bullion sales is nearly twice that of -- more than twice that of FY '22. So it seems like it's a bit of a -- is it like an assortment intensity rising or refresh rate is rising. Is it -- what my question is whether there's a part of old inventory being melted or excess gold being sold? And what -- whether the jewellery margin, is it accounts for all that value loss that may have happened if you have melted jewellery back? And are you doing it increasingly more as you maybe refresh rate is higher. Can you sort of describe what is the strategic intent here and how we should read it in terms of growth acceleration or inventory being refreshed and things like that? Or is there something I'm digging too much into it?
Yes, Amit, that is the good question, and I'll clarify, there are 2 observations which might help you follow it. See, this is the year where we have started importing CEPA gold. There's an agreement between UAE and India, and there's a 1% custom duty benefit for taking in CEPA gold. There's a quota and you have to apply.So in the current year and most of it in the last 4, 5 months, we imported close -- we imported a substantial quantum of CEPA gold, okay, in several tonnes. And that gold is imported on spot basis. And then there is some contango, et cetera. So consequently, our -- to manage the capital employed, we have been now following a strategy of ensuring that we try to maintain GOL as a proportion of the overall inventory at a certain percentage. And because a lot of this got kind of came in as a lump towards the last 4, 5 months, we had to do a little bit more of bullion sale to manage the capital employed, yes. So it's nothing to do with the previous set of doubts or thoughts you had.We also did a little bit of proactive spot buying in quarter 3 where suddenly CAD deficit, et cetera, was beginning to worry and we thought let's protect ourselves from any gold-related restrictions. So that also maybe added a little bit.On the broader point that you mentioned that with refresh rates changing, et cetera, we typically tend to look at melting and provision as 2 line items, and we try to relate that as a percentage to the NSV. It has been fairly stable over the last 4 or 5 years, and it's not significantly changing upward number. So the melting as a percentage of the total and the potential value loss, et cetera, is broadly consistent, nothing much to worry about. And I don't think it's something which is going to affect our margins, for sure.
I would just wonder whether there's some bigger intent here, which is not visible internal, but it might have implications. My second quick question, if I may ask about which you have obviously clarified as terms of trade issue between L2, L3 and things. But is this larger intent is to sort of -- since you have to make the gold price competitive, it is sort of an effort to pass it along to all the channel partners and everybody mitigate costs and sort of navigate it? Or what is the genesis of it? Or it is like they are just value capture is too high since the gold price is high that it needs to be balanced out. In that case, are you investing the gains back into the business for growth? Or what is the real intent here? Just wanted to understand.
So again, 2 comments. One is that we have invested ahead in terms of both gold rate and inventory even before we made these changes. So our investments over the last couple of years has been high and will continue to be high. So we are all investing for growth, even not trying to recover.The second piece is, we are actually trying to moderate the product mix in a different way to manage the gross margin because, let's say, if you're losing out on gold rate, the best way to gain is by being able to give a richer mix or a more higher complexity mix, et cetera, and do some product engineering. So if we have to do that, then we have to ensure that both us as well as the partners are aligned in the same direction. There's no point in my supplying that doesn't sell.So if the incentives are better or the margins are better on higher complexity or medium complexity products, then we are aligned in the same direction. So that will give better margin to us and better margin to them as well. And therefore, this entire exercise was aligning us and then the same direction going forward, and we are seeing a lot of work going on in product mix. And as I said, it was a 15-year old TOT, at that time, we didn't have any of the products at all that we are today selling.
Got it.
So actually there is nothing about trying to share and capture value. It is purely about aligning towards a more profitable future.
Understood. Just very quickly, if I may, ask about the international expansion piece. And it seems that, domestic is 21, but overall is 23, which means international is already adding 2% roughly growth rate to the overall mix. So, it seems to me that international is going pretty well. And can you share the number of stores you plan to open this year, and whether L2 or L3 format is gaining momentum there as well or it's largely L2 and lower store? Can you give us some color on international piece, the ambition for this year?
Amit, this is [ Diny ] here. You're right that international is going pretty well. However, we've been able to open stores. The response has been quite overwhelming and very, very positive. So we are up to 7 stores now, 6 in the UAE, and 1 open in the U.S. since December. And in the coming year, we are looking to add quite a few more. We are planning to expand to roughly around 25 stores, cumulative by the end of FY '24. Large number of them across the GCC region, UAE, as well as other countries around Qatar, Bahrain, Oman, are all possibilities and also expanding our footprint across the U.S. That is the plan.
Got it. And is L2 or L3 which is the kind of format you're essentially using or is it like your own capital?
We have all 3 formats. We started out with L1 in the UAE essentially for us to sort of get our hands dirty and understand how the business works, because we're doing this for the first time in an international geography. But we also have L2 in the U.S., and now we are opening some L3 as partners are gaining greater confidence. Like Venkat said earlier on the call, a lot of our partners, our franchisees in India are asking for the chance to be given to them to operate a store in international markets. We're also now finding a lot of local partners, meaning people who are not in any way connected with Tanishq or Titan earlier, but also coming forward on the strength of what they have seen.We recently announced a tie-up with Sharaf Group, who runs the Sharaf BG chain of stores in the UAE. They have come forward as a partner to work with us as franchisees for stores that will be Tanishq branded. That will be like any partner operating a store for us.
Got it. That's very, very useful. Thank you so much for sharing this. I am sure that qualitative strategy will emerge eventually for non-Indian population as well. But is there a plan towards that end as well, that when you go to U.S. market, there's a large, very different kind of mix as well that exists very high margin. So are you, it's still an Indian diaspora and that's what the reason of being there is. Is there a customer mix and product mix going to be very different or is very different already?
At this point, it is almost 98% Indian. We get a lot of South Asians in our stores in GCC. But predominantly Indian and that's the beachhead that we are attempting to establish. But like you said, obviously, the market in many of these geographies for the non-Indian consumer is much larger, much bigger, and hopefully much more profitable. And therefore, we would certainly want to go after that. But at this point in time, the primary focus and objective is to develop a very, very strong competitive and high quality offerings for Indian consumers, give them a really superlative experience.But just to give you an indication in the Titan EyePlus format that we've launched in Dubai, we're getting up to 25%-30% non-Indian customers. So that's because we're present in a mall location. And certainly, the products that we have to offer, and the strength of value offering from India seems to be working very, very well. So early indications are very, very positive.
Amit, Venkat here. The other opportunity is that, all the Indians that we are currently acquiring as customers also have a pretty decent non-Indian jewellery that they buy. Not just the Indian jewellery that they buy to wear with Indian clothes, Indian occasions and all that. So for example, brands like Signet and Kays and Jared, and why not even Tiffany and brands like that. So we want to become a one-stop shop for all Indians apart from the point that Diny made about non-Indians, but even among Indians with the product lines that we are currently going with from Tanishq, Mia and Zoya and all that, satisfy substantially the Indian needs of the Indian consumers.The non-Indian needs of the Indian consumers is also a pretty decent opportunity and Diny and team are working to understand that better, create product lines to cater to those needs and therefore maximize the share of wallet and the total share of jewellry purchase as well.
Great, Venkat, thank you so much and all the best. That's all for me, thank you a lot.
Yes. And one last point on, many people have spoken, asked questions relating to that terms of trade change. And I would just request all of you to sort of step-back on and see the subject which Ajoy has said. But I'm just saying it again, to reinforce -- its an operating aspect of the business. And frankly, the questions are sort of ending up making it look like a strategic or a business model kind of subject, which it is not. It is an operating aspect.As long as we continue to deliver best-in-class returns to our partners, which even after this we are delivering, I would wager that in the Indian retail industry, Tanishq would deliver best-in-class even after this. So, it's just an operating matter and not -- does not merit the kind of level of conversation perhaps it is going into.
The next question is from the line of Latika Chopra from JPMorgan.
I had a question on Mia. I wanted to understand what is the revenue size for this brand, for FY '23? And what is the split coming from the standalone stores? There are about 111 stores now. And how are you thinking about the store addition plans here?
Hi, Lathika, Ajoy here. So Mia has done exceptionally well. It's gone up almost 3x in the year. And I mean, just to give you a sense, in consumer price terms, it is about INR 730 crores, INR 740 crores this year, growing rapidly. And we expect, Mia to hit 1,300 -- INR 1,350 crores in the coming year. About 40% of the business is coming from Mia standalone stores. The rest of it is coming from Tanishq stores, because it's at the end of Tanishq. And right now, very negligible is coming from online.So the opportunity ahead room on online is huge, because the ticket sizes are bang on. In terms of the 110 stores or whatever that you talked about, we expect to double that by the end of this fiscal. So, we are going aggressively on expansion. The opportunity is huge. And this is still within the top 30, 40 towns, not really going too deep, in fact, most of in the top 25 towns. So we see a large opportunity for Mia and fine jewellery is kind of coming of age. CaratLane has also seen that. Mia has also seen. And this is the emergence of a segment which is very exciting.
Yes. And I just wanted to also check, for CaratLane, is there a timeline or a thought process or even if there is something that you would want to acquire rest of the stake in the company? Is there something that could happen in the immediate future or? You are pretty happy with the arrangement or ownership that you have currently.
Latika, you are well aware -- you have asked I think earlier also. These matter cannot commented upon till we become mobilize, which we start to exchange and which we didn’t do. So right now we will not like to comment upon that kind of question.
Sure. Sure. The last bit I had was on watches business. I think, if I heard it correctly, you mentioned 125 to 13% target margins for this segment. Could you share what has been this revenue salience of wearables in FY '23 revenue mix? And what kind of margins does this operate at? And is this a reason that probably margins for this segment could be in this band?
Yeah. Latika, the quarter 4, we were about – we spend -- but for the overall year, we were about 10% of the total turnover and the margins in this are slightly lower than watches. It is also reflective of the, 3 decades of leadership that we have in watches that we're able to command that kind of premium. Having said that, in wearables we are at a premium to similar comparable products from other brands and doing well.Over a period of time with various other business decisions, including Make in India, the margin will only improve. But yes, long-term wearables present a huge business opportunity where inherently the margins are lower profile than watches.
The next question is from the line of Chirag Shah from CLSA.
Ajoy, I just wanted to share your -- wanted your thoughts. In a period of rising interest rate environment and higher gold prices, I was wondering how this interplay impacts our business. One from a perspective of the spreading borrowing cost between good leasing and informal sector borrowing cost. Fair to assume that this spread would have widened because the working capital cost increases for the informal sector should outpace the increasing gold leasing rates? And then how does this impact franchise economics? This is of course beyond the franchise sharing agreements that you kind of alluded to.
So you're right that the informal or unorganized sector will find it more difficult with rising interest costs. As it is, bank borrowing is not easy for them. Jewellery sector is not very favored by banks. So higher interest costs and tougher financial conditions will impact. From a customer point of view, we are not seeing, in the sense, one gold rate stabilizes. Customers are actually comfortable coming in. But yes, in terms of maintaining certain quantum of gold, let's say, kgs of gold, it does impact.Having said that, the informal sector also does not, in a way, they are not, They have gold which is historically there, not on debt. And they typically view that as well. So, and their quantum of gold holding is also quite significant compared to us. In terms of stock terms, we are much better than most. They don't look at stock terms. So, I don't know, maybe if it sustains for a long enough time, it does create pressure. And certainly those who are weak tend to become weaker and any of the independents who are strong become stronger. And we've seen that happen over the last few weeks. Not sure if I answered all parts of your question. Is there something?
Right. On franchises economics, how does the rising interest rate environment impact them?
Well, for L3, it can affect because L3s are on buy and sell, and therefore there is an impact on them, but there is enough, the margins and the terms of L3 are very high and their return on investment are pretty strong. And many of our L3s are also quite older in the system and they're getting fabulous returns, their scale economics are very high.So for the newer L3s who might have come in the system, yes, there is impact. But there, in fact, our new structure is enabling them even better. So as I was telling, some franchises may have lost, but many have gained. Any of the smaller, newer, and lower scale franchises are actually going to gain in some of our changes that we have made about structural changes. So no, it's not a big concern for us, if that's what bothering you.
Got it. Can you just give us a sense on the trend of gold and hardware registration? And secondly, on the studded jewellery side, of course, this was an activation quarter. We have also mentioned that the lower cost inventory of diamonds is kind of behind us. Can you just explain how does the inventory buying cycle work on the diamond side?
On Golden Harvest, we've had fabulous enrollments, quarter 3, quarter 2, quarter 3, quarter 4, are very, very healthy double-digit enrollments. And we have a metric called enrollment-to-buyer ratio, which is driven across different stores. And they think fabulous percentage is there, all-time high. So that is very good from a lead metric for future intent to buy jewellery, at least from us. So we are very happy with Golden Harvest, and it's actually firing very well for us.Regarding Diamond Studded, yes, the activation quarter was good, therefore we had a better mix than last year, but it was still slightly below if I go pre-pandemic year. That year again, last 15 days there was a lockdown and gold got affected, so I'm not able to comment. But yes, we have come close to what we used to be pre-pandemic in terms of studded ratio. We expect to drive faster growth in studded. I mean that's always been the intent. But we have dealing the 2, in the sense we no longer worry too much about the ratio as much as each segment growing at a certain pace.I didn't follow the question on the inventory cycle, but typically started, inventory terms are lower than the gold ones, pretty much because that's historically the case.
Yes. My question was more from a perspective of, on a slide you've mentioned that the consumption of older, lower cost diamond inventories got over in Q3, and we are now getting into the newer inventory buying cycle. How does the diamond inventory buying cycle work?
Okay, okay, I got it. See, we had some gains on account of buying, we had opening stock of diamonds at a certain price and then because it had gone up, we had increased the selling prices, which was ahead of the cost hitting us. Now, the consumption of all those low-cost diamonds is over and done and therefore there is a normalization -- of the studded margins so that diamond inventory gains are no longer there. How does it work? We typically work on some consumption cycles and we have to predict 3 to 4 months ahead of time to buy diamond. And it's one of the most challenging questions you've asked. Even I'm trying to figure out whether we can do it better.
Got it. And what exactly do you mean by digitally influenced sales, which is now at about 18%?
Digitally influence that is in CaratLane ? You're referring to this particular segment?
There is a, on one of the few slides earlier, I think on slide number 9, you've mentioned digitally influenced sales in Q4 was close to about 18%. Slide 9.
Okay. Slide 9. We just need to -- okay, so when we look at digitally influenced sale, actually there is online, people who come online buy online. Then there is people who come online, engage in a conversation with our live videos et cetera. And thereafter we do an omni, that is we hand them over to the store buy, right? And then there's a third element, we also do a lot of endless aisle, video call, day selling, et cetera. That also we are in a way, so the customer may have walked in some store, might see products lying in some other store. So all of that we also look at in terms of digitally influenced.And there are some other indirect attributions that we also look at in terms of people who were reached out on social media and digital and then how many of them actually came in and bought. That is some data that also comes to us from our partners. Okay. And I think a lot of that 18% that you're seeing numbers there, it is about joint closure of omni and online. And I think that 18% is a weighted average between CaratLane, Tanishq, Mia, all put together.
Got it. If I may just slip in one more to Saumen, what is the revised store rollout target for the either business now and can you dwell a bit more on the distribution model expansion going forward, please?
Chirag, we would open another 100 stores in the coming year 8 to 10 months, hopefully in the first 6 months, but we are not going beyond the top 20, 21 cities. That's the change that we have made. So therefore, around the first half of FY '24, or around that period after November, I think we should be around the number that we spoke about 1.5 years back.On the distribution front, I think -- we have taken some aggressive goal here. I think we have altered our product portfolio. We have also re-engineered the terms of trade for our regular fatality. With this, we believe that we will be able to reach out to a lot more booklets across the length and breadth of the country and therefore we should be able to get a lot more customers in the areas, in the districts, in the towns where let's say a retail store by itself may not be the most viable proposition.
Got it. And you explained the margin part for this quarter, but if I can just get in a bit more there. So, you've mentioned that this quarter was about 61% versus lens at about 20%. So has the product mix also impacted margins? And, do you think the competitive intensity last quarter was much higher with your key competitor getting more aggressive?
I think competition would have affected our overall number, both the top line and the final thing. I think some of the things that I explained on the top line side, one channel did not really make any contribution toward the last month. And we also have to make certain correction in order to prepare ourselves for FY '24.On the cost front, there are a few one time thing as it does. So I would broadly place the quarter for results in that space rather than saying that external factor has impacted our numbers.
Time for us to close. Vedant.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. C.K. Venkataraman for closing comments. Thank you and over to you, sir.
Thank you very much everyone for all the probing questions as always. And I look forward to seeing you 3 months from now. Bye-bye.
Thank you. Ladies and gentlemen, on behalf of Titan Company Limited, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.