The underlying growth was subdued in the first quarter in this business. As a result, the first half growth was not as targeted. We were determined that we should make up as much as possible and it turned out to be so with a very spectacular third quarter thanks to the festive season sales, a lot of new product introduction, activation and of course, the Dhan Teras sales contributing to all the growth.
Obviously, we would not get that kind of growth in Q4, but the good news is that the wedding season will continue and therefore we expect to have a healthy growth rate. Our original target was 25% growth for the year we will be nearly there — around 23% according to the current projection.
What is going on with the watch margins because they too have come in line with what you had guided earlier. Do you expect some kind of growth to kick in in Q4 and even better Q3’s performance?
The Q3 margin in watches was lower than the first half and we had said that the first half margins are not likely to sustain because it was an exceptional margin of about 18%. However, the re-crafting and correction that we have undertaken has begun to play and average margin between 14% and 15% is one of the highest in the business. That is what we are targeting and that is something we will achieve.
Q3 was impacted by high spend in advertising which was rescheduled because of Diwali etc and a surge in ecommerce sales which was very high sales because of the big billion days and so on. The cheaper watches sell during that period and therefore the growing impact of ecommerce is visible in that business. However, the growth in volumes and turnover is what is important in that business because with scale, the margins will shift. So, the good news in that business is the growth but the PBT drop in Q3 is only because of one or two factors like this.
What are you hoping to do in Q4?
While you saw 18% in the first half and 8.6-8.7 in Q3, the average is at 14.5-15% and that is likely for the year.
When we speak to representatives of the jewellery sector, they are not excited. They say dhandha mandha hai (we are struggling). But you are growing, why is that?
I would attribute it to two things; for years well before demonetisation and GST and the formalisation of industry and trade, we had been talking about the shift in consumer preferences for buying and the adornment space which we occupy, that is people buying jewellery for adorning themselves rather than for investment. There is a clear shift.
We continued focussing on that by increasing our proportion of diamond jewellery sales and that has played well for us both by way of growth and margin. Now the adornment space is also visible in wedding jewellery, which we entered more recently. People are buying expensive wedding jewellery from us and we are making better margins than the plain gold jewellery that we sell otherwise. Apart from that, demonetisation and GST, which led to formalisation has also led to a migration of customers from the so-called family jewellers or mom and pop stores to us..
You have set target of 25% growth. Is it possible to achieve that on a large base now because you have a significant market share?
We are on target for achieving the 2.5 times (25%) growth in five years which is, therefore it will vary from year to year but right now we are seeing a good growth because of the three reasons I mentioned and the tailwind in that is the formalisation of the Indian economy and particularly in jewellery where the unorganised trade continues to be very large. They are the ones who got affected. How much it is, we are not able to estimate because of the unorganised nature of the information as well.
Any disruptive supply chain or retail disruption which could happen because of online growth? You have also attempted something in the online space but that is where a disruption is and that is where there is a threat to the existing supply chain and models?
You are right. I do not call those disruptions, those are new age happenings. Customers find it easier to buy online but it differs from category to category. Our performance in watches for example has been exceptional online. We have grown to quite a significant size in watches between our own direct sales through our website and our own online channel as well as through the marketplaces.
It is not the same in jewellery. In jewellery, there are online plays through CaratLane as well as Tanishq and Mia, CaratLane is a larger player but there again what is playing out is the Omni channel strategy that we have adopted.
A large number of stores have been opened in CaratLane as well. Eyewear on the other hand, is a different story. Online feeds the brick and mortar stores and again we are seeing a growth. So for us it is to be able to influence the online customer digitally and then leave it to the customer to decide where he or she wants to transact — online or offline. We are present in both places and so we are well positioned for the emerging new age habits as well as traditional habits of buying by going to a store.
We should not be taking a judgement call. Indian customers still want to go to the store to touch and feel jewellery, for example, as also eyewear. As for watches, in our large format stores channel and our Helios channel, people actually want to come and buy in the store because when you spend a large amount of money, you want to see what you are buying and there is after sales service and so on. It is a combination and I believe we have the assets in place.