Stressed consumer sentiments coupled with growing tendency for
conserving cash in hand is likely to impact growth targets for consumer
companies in the remaining quarters of the current fiscal. And as demand
environment continues to be sluggish, consumer companies could be
looking to revise their growth guidance for the second half (H2) of
fiscal 2019-20 (FY’20).
Taking
a lead in this direction is Tata Group’s jewellery, watches, eyewear
and fashion accessories business vertical, Titan Company Ltd (TCL). The
company management said in an earnings call on Tuesday evening that it
has revised jewellery business growth guidance for the period between October 2019 to March
2020. Taking a cautious approach Titan Co. management had in August
2019, said that it was targeting over 20% revenue growth keeping the
wedding and festive season in mind.
C
K Venkataraman, managing director, Titan, said, “The guidance has been
revised to between 11% and 13% now from the earlier over 20% growth
levels.” The downward revision has been done after taking into account
that overall market situation and consumer buying behaviour, said the
top company executive.
Analysts tracking Titan are of the view that the premise of over 20% growth talked about earlier was based on company’s execution of business and not necessarily relying on overall macro market conditions. However, the change in the guidance now is an indication of concerns in this industry as a result of which Titan management has made a significant correction in its growth numbers going forward.
Abneesh Roy, executive vice president - institutional equities (research), Edelweiss Securities, said that the brokerage has been pointing that achieving 20% guidance in H2FY20 is very difficult in jewellery business given weak sentiments, high base of 36% in Q3FY20 and 21% in Q4FY20. “For FY21, the company is yet to change guidance from current 20%. By next quarter, Titan said they will have more clarity,” said Roy.
While Edelweiss expects Titan to correct 5-6% in near term, from longer term perspective, the brokerage maintains a BUY on dips given huge retail expansion, struggling competitors and increasing formalisation of jewellery sector.
Elucidating the reasons that led to revising the guidance, Venkataraman said, the company had set out a growth table for five years
based on positive sentiments in the business environment. Growth may
have been sluggish, in single-digits or flat during the fiscals 2018 and
2019 owing to certain migration that started happening as a result of a
lot of structural changes, demonetisation, Nirav Modi scam and so on.
”The trust factor started kicking in, in favour of Tanishq and we were able to deliver a 20% plus growth rate with a certain set of initiatives and certain level of excellence in our execution. Our internal research with consumers done earlier in January and February 2019, indicated positive sentiments. However, what’s appearing now after six - seven months, is that the sentiment is actually worse than what we had measured then.
”The trust factor started kicking in, in favour of Tanishq and we were able to deliver a 20% plus growth rate with a certain set of initiatives and certain level of excellence in our execution. Our internal research with consumers done earlier in January and February 2019, indicated positive sentiments. However, what’s appearing now after six - seven months, is that the sentiment is actually worse than what we had measured then.
“As
a result, the overall industry has witnessed 70% decline in imports,
every single jeweller that we are aware of, is talking about a decline,
vendors are talking about big drop in supplies. Regional jewellers are
talking about a 12% and 22% decline in business during the festive
period as opposed to 10% positive growth that has been achieved by
Tanishq. So, obviously the strategies and standards of excellence in our
execution are happening in a circumstance that’s less in our favour
than a year ago,” he said.
Taking
into account the market conditions, the company had to go back to the
drawing board, expand the number of weapons that required (to deal the
market conditions) or create fresh ones. That, as per Venkataraman, will
take a little more than a few months and hence the change in guidance
for October 2019 to March 2020 period.
“It
is our intent to keep gunning for the over 20% growth number for fiscal
2021. For the moment though, it can only be about tweaking of the
arsenal that we already have. And we are going by the more recent growth
performance over the last three to four months,” he said.
While companies like Hindustan Unilever Ltd (HUL) operating in the fast moving consumer goods (FMCG) sector are optimistic about overall business, the company management had earlier said that near-term demand outlook, especially in the rural markets, remains challenging.
Among India's leading Ayurvedic and natural health care companies, Dabur said that it is working on achieving its annual growth target of mid to high single digits for the full year.
On the possibilities of revising the guidance for the second half of current fiscal, Mohit Malhotra, chief executive officer, Dabur Ltd, said, there was no need to do it. “We will work to achieve the targeted growth rates for the fiscal 2020,” he said in the earnings call on Tuesday.
While companies like Hindustan Unilever Ltd (HUL) operating in the fast moving consumer goods (FMCG) sector are optimistic about overall business, the company management had earlier said that near-term demand outlook, especially in the rural markets, remains challenging.
Among India's leading Ayurvedic and natural health care companies, Dabur said that it is working on achieving its annual growth target of mid to high single digits for the full year.
On the possibilities of revising the guidance for the second half of current fiscal, Mohit Malhotra, chief executive officer, Dabur Ltd, said, there was no need to do it. “We will work to achieve the targeted growth rates for the fiscal 2020,” he said in the earnings call on Tuesday.
(The writer is an independent business journalist and can be reached at ashishktiwari.1976@gmail.com)
