BOTTOMLINE: Titan’s hallmark of trust to be challenged in new world of gold

By retail November 18, 2020 17:25

BOTTOMLINE: Titan’s hallmark of trust to be challenged in new world of gold

It isn’t every day that a marquee brand like Tanishq has to pull off two advertising campaigns in quick succession. That this happens just ahead of the festive season has its own implications, but more importantly, this could in future curb the brand’s freedom of expression and ability to strike a chord with its targeted customer base. Tanishq will likely tread the more “acceptable” line henceforth, and that would be unfortunate.

But let’s first understand what led to this. To be fair, “woke” advertising–ads focused on creating awareness about social issues–has been the trend for a while, with many brands taking the high ground to elevate their pitch.

Unfortunately, many such brands have done little on the ground to back their “responsible” communications, and this has been getting some push back. But that’s not so true of the Tata group, which has established credentials on being socially responsible. So what misfired for Tanishq?

Most big brands usually do enough research before launching an advertising campaign to gauge the response of customers from their target segments to communication. Tanishq may have done the same, but what it didn’t factor in—social media being a universal medium—was the backlash from sections outside this target group. The result, the campaign to promote its Ekavam, the beauty of oneness, a collection that featured a Muslim mother-in-law organizing a Hindu ritual for her daughter-in-law of the latter faith got trolled by hardline right-wingers. They claimed it promoted love Jihad—a term used to indicate a phenomenon of Muslims luring Hindu girls by feigning love. Attacks on Tanishq stores only added to the controversy, compelling the company to withdraw the promotion.

The second promotion, again for Ekavam, featured women speaking about celebrating Diwali by, among other things, avoiding bursting of crackers. While there were some similar responses in this case from hard-liners, it seems the ad was pulled off so as not to hurt the sensitivities of workers involved in making crackers, as it is their source of livelihood. That said, it didn’t look good for the brand.

Will this have a debilitating impact on the brand? Unlikely. Brands like Surf Excel and Red Label have got trolled in the past for trying to communicate bonding between Hindus and Muslims in religious contexts—a Surf Excel ad showing Hindu girl taking a Muslim boy to the mosque on her bicycle and a Red Label ad showing a Muslim maker of Ganesh idols—but this hasn’t marred their image. In fact, even in the case of Tanishq’s Ekavam ads, the company likely saw enough positive response from its targeted customer base.

What it will do, in the short-run though, is nudge the brand to tread a safe path on communications, which may not be the most effective option to engage with its customer base. The brand has celebrated women and dwelled on social issues in the past, so the recent incidents can crimp its style.


The core appeal of Tanishq jewellery lies in the line: Pure Jewellery, Pure Joy. It is the “pure” factor that has drawn customers to the brand because in jewellery the purity of gold is a key factor and here the trust in the Tata brand is a big pull factor. The trust factor in gold purchases has far more significance than in the case of FMCG products or even in automobiles or consumer durables, and hence any change in this equation can have a significant impact. And that’s exactly what’s likely to happen come January 2021, when all gold jewellery sold will need to be hallmarked for purity.

In a hallmarked world, the playing field will be levelled because the purity of jewellery sold will be the same as certified, irrespective of the retailer you buy it from. That will leave players to compete mostly on design, craftsmanship and customer engagement. That can be a big change for Tanishq to contend with. Already, players like Malabar, TBZ, Bhima and Kalyan have started expanding their presence, and hallmarking will give them another lever to compete with against Tanishq, whose trust quotient till now was almost insurmountable.

The management of Titan seemed quite sanguine about the upcoming change, suggesting that the shift to hallmarking could push up costs for its peers and narrow the price-differential vis-à-vis its range. What could also happen, is that rapid formalization of the business—with the big brands acquiring more market share from the near 100,000 smaller jewellery retailers in the country—could actually work in favour of all the brands. I’d, however, take those possible outcomes with a dose of caution, though formalization will remain a long-term theme.


The Titan stock has bounced back to near Rs 100 shy off its October 2019 high of Rs 1389 after almost halving from there to Rs 720 in March this year. The liquidity-driven rally has clearly lifted the stock like many others in the market, and a further upside in the near term can’t be ruled out. But can the company continue to deliver the heady growth of the past few years? That’s the big question.

To better assess the prospects, let’s look at the drivers of its growth in recent years. After single-digit revenue growth in fiscals ended 2014 and 2015, the company recorded a 5 percent de-growth in 2016 before notching up year-on-year growth ranging from 18 to 22 percent over the next three years. In 2017-18, growth was driven by the GST impact. The company in its annual report said: “The business continued to capitalise on the formalisation opportunity in the Indian economy created by demonetisation and the implementation of GST. Brand metrics were strongest in many years. The business continued to garner a higher share in the Wedding jewellery segment as well as in the High-Value Diamond Jewellery segment with 35 percent and 30 percent contribution respectively”. In 2018-19 it was a rapid expansion of stores that kicked-up growth. The annual report notes this as the “highest number of Tanishq stores (added) in a single year”.

It seems unlikely that another tailwind like GST will benefit the company in the near future. In fact, unlike most other sectors, players in the gold trade have actually done quite well this year amidst Covid owing to the sharp rise in gold prices. This is anecdotally evidenced by those in the business scouting for prime property buys in Mumbai.

Accelerated store expansion with COVID not out of the way yet also seems like an imprudent path to tread at the moment. The company added 14 stores in the first half and it could add another 20 in the second, whereas it added 40 stores in fiscal ended March 2020.

Given these factors and the big imponderable, the onset of the hallmark regime in January next year, expecting a near 20 percent growth beyond 2021-22 could be a challenge, even though a 20 percent growth over fiscal ended 2020, is being pencilled in by analysts on the back of a slow 6 percent year-on-year growth in the base year.

This also because given the high dominance of jewellery in the revenue pie far out-scales any impact of its other businesses.


For Titan, watches was its first big play, but after a good run, growth in the segment has slowed. So, any outsized growth from this segment would be expecting too much. The other seeded segments—eyewear and sarees—do, however, have significant potential but they’ll take time to scale.

While eyewear, according to Deloitte, could be a $10 billion market in India with 80 percent share of the unorganized sector and growing at 9 percent – but a faster 15 percent for organized players—for it to scale to a size that makes a difference to the fortunes of Titan will take time as it presently contributes just 2 percent of revenues, and even a 50 percent growth in the segment will only up growth by 1 percent.

Taneira, the saree store, is the other big potential opportunity identified by the company—with a large unorganized presence and potential for formalization. The saree industry in India is estimated to be about $5-6 billion big in India, with few brands. In fact, Nalli, a brand with a 90-year legacy and presence across cities in India and the US is the only one I can think of—pardon me I’m not a saree expert—with a retail brand presence in the segment.

But both these segments even together don’t have the scale of jewellery, which is estimated at a $40 billion business in India. And the other small segment of fragrances is far less promising, as this is a crowded play with FOGG owner Vini Cosmetics joined by big names like Hindustan Unilever, ITC, Nivea, Emami, and Raymond already jostling for more shares.

Given this backdrop, expecting Titan to deliver a 20 percent year-on-year growth for the next 2-3 years and an even higher profit growth seems like a big ask. Thus, a discounting of Reuters’ projected 2022 EPS estimate of Rs 21 per share by 60 times does seem a trifle overdone.

So, keep the faith if you will, Titan is a good long-term franchise, but don’t expect outsized gains in the near term.


Courtesy : CNBC

By retail November 18, 2020 17:25
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