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We expect clear profits by fiscal 2004: Timex MD

Neha Kaushik

New Delhi , Oct. 9

AFTER seeing continuous losses over the past few years, Timex Watches India finally seems to be moving with the times and has a turnaround strategy firmly in place. Despite slack growth in the overall watches segment, the company has incurred double-digit growth so far this year and is all set to achieve operating breakeven this fiscal.

In an interview with Business Line, Mr Kapil Kapoor, Regional Director (South-Pacific) and Managing Director of Timex Watches India, shares the company's restructuring strategy and outlook, apart from providing a perspective of the growth being seen in the domestic watches industry.

In the backdrop of the single-digit growth seen in the watch industry, how would you assess Timex's performance so far this fiscal? What kind of growth has Timex seen?

The total demand for watches in India is 25 million pieces every year, of which the organised sector supplies around 11 million. Of the 25 million watches sold in India, the most profitable segment is the sub category of Rs 1,000-Rs 3,000. And since the organised watch sector is really interested in this segment, this is now the fastest growing segment in the industry.

The watch industry is growing at about 3-4 per cent year-on-year and there has been no significant buoyancy seen on an overall basis, but it is in sync with the GDP growth. However, the aforementioned segment is growing a little faster.

Timex's performance has been quite good this fiscal compared to the industry performance. Despite sluggishness in the industry, the `sporty watch' segment of Timex did well in 2002-03, growing from 0.5 million to 2 million. Timex has a 22 per cent market share of the organised sector at present and the company, with an annual growth rate of around 5 per cent, expects to increase its market share to about 33 per cent by 2004. We are expecting a compounded annual growth of approximately 20-25 per cent. More importantly we have grown in the profitable segments, thereby substantially reducing our losses.

You recently charted out a capital restructuring strategy for the company. What does it involve? What benefits does the company aim to achieve through this restructuring?

In the capital restructuring strategy of Timex, we had offset all its losses against the gross net worth. This is done by way of reducing the paid-up value per equity share from Rs 10 to Re 1; paid-up value of preference share capital of the company from Rs 100 per share to Rs 10 per share; and utilising the amount available in the share premium account. The gross net worth of the company as on March 31, 2003, was Rs 143. 87 crore and the company's accumulated losses during the 12 years of its operation in India were Rs 125 crore.

The company's current results have improved considerably but because of accumulated losses in the past, Timex's results were unable to reflect its current performance. With the current capital restructuring strategy, the company's balance sheet has become more reflective of its current performance.

When is Timex looking to break even in India? What kind of turnover are you targeting this fiscal?

Timex is scheduled to achieve an operating breakeven in 2003 and expects to show clear profits by fiscal 2004 with a billion plus in turnover and an increased market share of 33 per cent. Timex is currently growing at an exciting yet sustainable 25 per cent annually. The company is making cash profit this fiscal and the drive towards profitability is assisted by about 50 per cent reduction in losses in the last two years. The turnaround would mainly be due to the increased sales and reduced manufacturing overhead expenses brought about by developing a more flexible supply chain.

Is the parent company looking to make any fresh infusions in Timex India?

Timex Watches BV is bullish about the Indian market, as India is the fourth largest market for it after the US, Canada and the UK. The company has never hesitated to bring in whatever funds are deemed necessary to grow the business or develop its strategic interest in the country.

Timex India is currently owned 83.5 per cent by the parent company (the promoters), and the balance is with a large number of ordinary shareholders from amongst India's investing public.

In which areas is the company looking to reduce cost (for instance, Timex has started sourcing components locally rather than manufacturing them)? By what per cent are you looking to reduce costs this year?

The main cost reduction programmes are in developing a scalable business model that can be flexed in high production months and reduced with minimal carry over overhead in low production months, critical for a fashion product in a seasonal industry. We expect to cut costs by about 10 per cent.

You recently set up a resource centre in Noida for outsourcing functions such as software development. Do you expect outsourcing to generate significant revenues for the company in the near future? What targets have you set? What are the other functions that you will be outsourcing to India?

The resource centre set in Noida would carry out back-end operations such as software development for Timex USA. This is the theory of competitive advantage at work. We do expect outsourcing to generate significant revenue for the company in the time to come, however it is not our core business. Other areas are still under discussion.

Timex has also been exporting watches to other subsidiaries. To which countries are you exporting at present? Which are the new markets that you are looking at? Do you expect a sizeable percentage of sales to come from exports in the next few years?

Timex Watches India has a strong manufacturing base at its works in Noida. We have already been exporting watches to markets such as Eastern Europe, US, Mexico and the Philippines. We are planning to increase exports from India to other subsidiaries worldwide (Timex has 30 subsidiaries worldwide).

We hope to leverage our strong base in Noida to complement those elsewhere around the world to effect overall synergies and global competitiveness.

We are in dialogue with our offices worldwide to increase sourcing of products from India.

What are the factors that will help you turn around this fiscal?

Increased sales in the right segments due to enhanced brand image and reduced cost in non-productive areas would help us see turnaround this fiscal.

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