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Titan: Titanic Success
Under Bhaskar Bhat, watch and accessories maker Titan made a habit of turning everything into huge successes. As he prepares to hand over the baton to CK Venkataraman, its current head of jewellery business, the company is getting ready to fashion another spell of explosive growth
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I wish I could find the next Titan...I do not see any on the horizon.” Ace investor Rakesh Jhunjhunwala said this some years ago referring to the massive return on investment by the watches and accessories maker Titan. If one were to goad Jhunjhunwala for his views on Titan once again, he would probably say the same thing even today. And here is why.
Titan is the fifth-largest watchmaker globally, clocks upwards of $2.4 billion in annual sales, employs nearly 8,000 people and retails through more than 11,000 multi-brand outlets as well as nearly 1,600 of its own stores covering 2 million sq. ft. It sells more than 16 million watches under Titan, Raga, Fastrack and Sonata brands. But it is the jewellery division with brands like Tanishq, Mia and Zoya that together contributes more than 80 per cent to the company’s revenue; watches account for 12-13 per cent.
Titan’s march has been relentless, both on the bourses and the balance sheet. On March 28 it reached a major milestone when it crossed Rs 1 lakh crore in market capitalisation. Its shares hit an intra-day high of Rs 1,129.25 on March 28, having surged more than 22 per cent since January this year, showing no signs of stress at all at the announcement of change of guard at the top. Its balance sheet too has shone in recent years. From FY2015-16 to FY2016-17, the company’s total income grew nearly 13 per cent. And from FY17 to FY18, it clocked a growth of 22.5 per cent.
And it’s not stopping yet to catch its breath. Over the next five years, the company expects to virtually double its turnover, having lined up aggressive expansion plans across existing and new segments. These include the growing eyewear business and the new ventures of fragrances and Taneira.
With so much happening at Titan, including the imminent change of leadership at the company, BW Businessworld reached out to the Titan leadership at its Bengaluru headquarters for a firsthand understanding of the workings of Titan and its road map ahead
On a day when the north Indian festival of Holi was being celebrated in many parts of the country, it was work as usual at Titan’s headquarters in Electronic City, Bengaluru. The new office, an airy structure surrounded by water bodies, is virtually an open workplace that was built with inputs from the employees. It has no air-conditioning yet it is cool and comfortable with ample space to sit and work.
The managing director’s corner office on the first floor is surrounded by glass walls on three sides and overlooks the greenery and water bodies. Managing Director Bhaskar Bhat has a favourite spot in his office for meetings, the Titan executives inform. One of them later shared on a lighter note that Bhat also prefers the spot as from there he can easily reach the bottles of dry fruits kept on the table.
“I started in Tata Press. I was selling watch components back in 1983. Though it was a small operation, but it familiarised me with the watch trade and watch-making business,” Bhat begins, talking about his early days in the company when Titan was getting established by Xerxes Desai, its first MD.
Bhat has been with the company for more than 35 years and is due to retire on September 30, 2019. He will hand over the baton to another Titan veteran, C.K. Venkataraman, who currently heads the jewellery division. The division heads of watches, jewellery, eye care and new business units report to the Titan MD.
|Bhaskar Bhat, Managing Director, Titan|
“COMPANY IS WELL PLACED IN TERMS OF GROWTH”
On your journey at Titan
The journey has been exciting and role has been fulfilling for me. Working for a Tata company, helping Titan build great products and brands in Indian markets and categories which are largely underserved, underpenetrated and underorganised is something that I really enjoyed all these years.
The company is well placed in terms of growth and numbers. The leaders have worked with the company for over two-three decades and in the process they have built strong teams to keep the momentum going. The change in management has been well planned and structured before we made the announcement. So we are welcoming this change.
On challenges facing watches, jewellery, eye wear businesses
Watches: It is about staying relevant to the category: We are now investing on tech-enabled wearable’s which will drive the category for the younger audience.
Jewellery: It will be giving more options and designs for her to shop with us. Jewellery, particularly gold in India is still seen as an investment instrument. We are working hard to change this perception to ensure it is bought and worn for adornment.
Eye wear: It is about sensitising millions of Indians to take care of their eyesight by regularly testing their eyes and getting them to replace their lens and frames.
On life after Titan
I will continue to stay here (in Bengaluru). Life won’t be as complicated. Like all good South Indian Brahmin I will go to temple in the morning, then go to the bank and chat with the bank manager and then go and read a book/read the newspaper from front page to last page. I have a lot of pursuits like trekking twice a year, playing badminton, reading a book etc. I may continue with my duties on some of the Company Boards. Let’s see. — Ashish Sinha
Titan began life in 1984 as a joint venture between the Tata Group and the Tamil Nadu Industrial Development Corporation (TIDCO). Its objective was to create world-class watches for every Indian. From being initially called ‘Tata Watch Projects’, it later become Titan Watches and now Titan Company. “At that time the watch market was fully mechanical. Titan was not the first one to introduce quartz, it had already been introduced by HMT. But Titan popularised quartz. All this happened between 1983 and 1988,” says Bhat, a B.Tech in Mechanical Engineering from IIT-Madras, and an MBA from IIM Ahmedabad.
Recalling his targets for the first year as well as the challenges back then, he says: “The first target was to reach 200 towns (with two lakh-plus population) in distribution terms because we didn’t have showrooms. There were many challenges. Training a large sales force on how to sell a quartz watch, tackling unhealthy industry practices, each state having its own taxation all these presented their own challenges. And there were several more.”
1987-1988, Titan sold 3.4 lakh watches and the income was Rs 16.7 crore. “For the year 1989-90, the income from watches stood at Rs 74 crore, while profit after tax was Rs 5 crore,” says Bhat, fishing out data from a pile of old annual reports of the company.
By 1990-91 Titan had sold over two million watches while the then market leader HMT was selling 6.7 million watches. “Our entry into the watch business kind of marked the start of liberalisation. Rajiv Gandhi was the prime minister who wanted to free up manufacturing companies and not restrict them to licensing. Pre-liberalisation, we were constrained to make 80 per cent mechanical watches and 20 per cent quartz watches. This changed after the 1990s and then we were only making quartz watches,” recalls Bhat.
In its early years, Titan re-defined how the watch business would work and grow. One of the key steps taken by it entailed introduction of redistribution stockists on the lines of the FMCG business. “Till then we were doing direct retailing.
After that we decided that we must use an intermediary to reach, but not like the HMT kind. So every one of our redistribution stockists came from outside the watch business. We got more Voltas distributors and fan distributors than watch distributors,” says Bhat, adding that the watch business was profitable from the first year.
Another step that helped build Titan was selling watches across India at a uniform price point after absorption of all taxes. Yet another step was the tie-up with Timex which galvanised Titan watch sales between 1992 and 1997. This was also the time when HMT started facing production problems leading to its decline, Bhat informs.
If everything was working in favour of its watch business, why did the company decide to venture into jewellery? “We entered the jewellery business because there was a need for foreign exchange...thereafter we realized that the overseas market for jewellery was very tough. But we also realized that India was a very big jewellery market,” says Bhat. The first mention of getting into the jewellery business comes from a paragraph of company’s annual report for 1992-93. “…it is expected that Titan’s venture into jewellery will bring the company not merely profit but also prestige...it is heartening to note that there is a strong backing for our plans from international organisations in the field of jewellery and precious stones,” Bhat reads from the report.
As Bhat readies himself for retirement, he is “Happy to see that we have, together as a team created a company that runs on value-creation – from customers, shareholders to employees.”
About his post-retirement plans Bhat says: “There are so many things to do in the next 20 years outside the corporate world… I have some personal pursuits, I have too many interests, they will come to be known when I start them but those are all private pursuits. Yes, I am on some boards and will have to take a call on which one to continue with etc.”
Jewellery Leads The Way
Bhat’s successor-designate CKV, as he is popularly known at Titan, comes across as an affable person when he is met in his office in another part of the Titan headquarters. He informs that he worked in advertising and marketing functions before taking over as head of the jewellery business in January 2005. “This is my 29th year in the company. I have worked for 15 years in the watch division and another 15 with jewellery,” he says.
C.K. Venkataraman, CEO, Jewellery, Titan
“THERE IS VERY LITTLE THAT WILL CHANGE AFTER SEPTEMBER”
On jewellery and watches
Globally, there are some commonality between jewellery and watches. You see many stores in the west selling both. Watch brands and jewellery brands are both fine objects. The luxury watches and jewellery are also expensive, and some of the capabilities required to be in this business are common.
On jewellery being the highest revenue generator
Jewellery is not a consumption item, it is a savings item, so everybody, even the poor buys. Therefore, the jewellery market is pegged at Rs 300,000 crore whereas the watch market is perhaps only 8,000 crore. Also, we entered this business at the right time and did the right things, hence have become big in it. For common people, Titan is a watch, jewellery, eye wear brand and more.
On impact of KYC and regulations on jewellery buying
In a way it was a good thing for us because we were anyways a law-abiding company. And a typical law-abiding consumer was also shopping with Tanishq. Those who wanted to avoid paying white or were unable to pay white were going somewhere else. I think there has certainly been a lot of reflection by people about the subject of doing things like this, why should I do this, let me pay in full white.
On getting into new business once in command
Right now there is no other business which we are thinking of entering. Honestly, I have no idea so far. And it’s nothing to do with my being in the seat because we are a collective company. So, there is very little that will change post-September.
On priority areas going forward
Right now we want to scale up Taneira, which is offering a very big opportunity. Everyone is excited, specially the consumers. They are really giving us very high votes for what we have come up with. Jewellery will be big going forward and so will be watches. Eye wear is on a growth trajectory.
— Ashish Sinha
Jewellery is now the leading vertical of Titan, contributing as it does more than 80 per cent to the company’s top line. For the third quarter ended December 31, 2018, jewellery accounted for around 84 per cent of the company’s revenue. Moreover, revenue from the jewellery business has been on a high-growth trajectory. For the third quarter of FY19 it grew nearly 37 per cent to Rs 4,997.03 crore, while profits from the division (before finance costs and taxes) increased 76.51 per cent to Rs 646.58 crore. Revenue from other segments also grew in high double-digits, with watches and eye wear clocking 18.16 per cent and 39.68 per cent growth.
Watches On The Rebound
Take, for instance, the watches and accessories business headed by S. Ravi Kant. He joined Titan in 1988 and headed direct marketing, followed by retailing and exports before taking over the International Business Division — for watches as well as jewellery in over 25 countries. As the CEO for eye wear, he established Titan Eye Plus as a national chain of optical stores. Kant took charge of the watches business in 2015. Commenting on the recent strategic alliance with Phoenix-based American watch manufacturing company FTS, Kant says “We are happy to support FTS in helping them revive the American watch manufacturing industry.”
The alliance with FTS will allow Titan to supply movement kits and also set up a movement assembly facility, training of US engineers at the Titan facility including visits by Titan’s engineers to the US facility. Asked about the current market size for watches, Kant explains: “Market size is defined in terms of consumer pricing. We are close to touching Rs 4,000 crore in terms of consumer prices. We are number one.”
When Kant took charge of the watch division, volumes were shrinking. “But in last three years, it has been a complete turnaround for the watches. So three years ago we were down to some 13.3 million units or so -- and that is when you know, we said we will turn this around. So the volume is going up and our profits are going to be close to doubling from what it used to be two years back,” says Kant. And all this happened due to the timely launch of smart watches like Juxt and Juxt Pro, Sonata ACT 2, a safety watch, Titan WE, and others. The watch division is spending a large amount on R&D to come up with smarter wearables going ahead.
Expanding Eye Wear Footprint
Titan’s eye wear division currently headed by Ronnie Talati was started in 2007 as Titan Eye Plus with its first store in Safina Plaza in Bengaluru. Incidentally, Titan had opened its first watch showroom 30 years ago in the same plaza, recalls Talati. Titan Eye Plus today has a retail footprint of 550 stores across the country. It also does distribution of sunglasses and frames. “We have 3,700 sunglass dealers. We have 1,550 frame dealers (optical stores). Including our own, we have five online platforms. Our total retail area is 3.8 lakh sq ft. We service 3.5 million customers a year, up from 2.4 million last year — a 43 per cent increase,” says Talati.
The eye wear division is now looking to service 10 million customers by 2024 generating over Rs 2,000-2,500 crore in revenue. Besides, the division plans to offer innovations in lens and further strengthen the after sales service. Talati pegs the eyewear market (minus sunglasses) at Rs 6,500 crore. “We are the largest player with nearly Rs 800 crore in revenue. We do not know the numbers of other players and there are too many players in the business because of high margins,” he says.
Fragrances and Taneira
Around two years ago, Titan forayed into ethnic wear and saree category called Taneira. “We believe it was the right time to enter the market. We believe we can mirror the success we created for watches, jewellery and eye wear categories to these new categories,” says Ajoy Chawla SVP, Strategy & Business Incubation at Titan Company. Chawla, who also doubles up as the Chief Strategy Officer for Titan, pegs the addressable market size for Taneira at about Rs 40,000 crore excluding the mass market. By 2024, the company expects to open 50 stores across top 20 cities. A typical Taneira store offers a collection made up of Mugas (Assam), Jamdhanis (Bengal), Chanderis and Maheshwaris (Madhya Pradesh) and a vast collection of Tussars.
Titan’s fragrance division, which launched its Skinn brand six years ago, has not quite set the perfume market on fire yet. In the first year, Skinn generated revenues of Rs 6 crore and it was housed under the watches and accessory division. But this year, the company is hoping to close revenues of around Rs 125 crore.
“Perfume is an extremely under-penetrated category in India. Somewhere along the way, we have lost the relevance of perfumes,” says Chawla, adding, “Our estimate is that less than one in six urban consumers use perfumes. Even within this set of consumers, usage is very low — perfumes are typically ‘reserved’ only for special occasions. Skinn is our attempt to get the Indian consumers to re-discover the joy of perfuming.”
The size of the perfume market is pegged at Rs 1,300 crore and growing at 8-9 per cent annually. Stating that Skinn may cross a million unit mark soon, Chawla says, “In five years from now we would not be surprised if Skinn becomes a Rs 500-crore category with 5-6 million consumers.”
All indications are that Titan will continue to march ahead clocking double-digit growth. But one thing is certain: there is perhaps no other company like Titan and there won’t be another Bhat heading it for over a decade and half.