The Hindu Business Line : `HMT's brand is Titan's lure'

Titan Industries, the top watch company in India with a market share of 50 per cent, recently expressed its interest to acquire a 74 per cent stake in India's first watch company, HMT Watches. Mr Bhaskar Bhat, Managing Director, Titan Industries, and Mr Bijou Kurien, Chief Operating Officer, Watches division, Titan Industries, spoke to Business Line on a variety of issues. This is the concluding part of the interview. The first part was published on September 15.

Excerpts from the interview:

How has the market reacted to `Edge', positioned as the slimmest watch in the universe?

The response to Edge has been good. We never thought that we would get this kind of a response. This is a one of a kind product and we do not have anything to benchmark it against. Every month, we are struggling to keep up with the demand ever since we first launched the product in May. Initially, we had targeted 30,000 units a year. We have already sold 10,000 watches in the first four months. The season is yet to begin and we are still behind demand.

Apart from the marketability and profitability of `Edge', it has brought us some very basic benefits such as the brand image, respect for the company at a global level and confidence within the company. The confidence within the company that we have been able to make something like this and market it successfully energises the organisation.

We have just moved it to the international markets. Internationally, it has been a complete sell-off because of its competitive pricing. No other manufacturer would sell this kind of a watch at Rs 5,000. Typically, movement manufacture worldwide has stemmed around how many complications you can put into a movement and how slim you can make the movement. Nobody would have thought an Indian company would do it. We have taken this slim movement rule and that has set us apart. We had invested around Rs 3 crore in R&D and have already broken even.

Your European operations have not been doing very well for the last few years... ..

We have cumulative losses of about £ 9 million from our European operations. Over the years, we have restructured our entire effort there. When we initially entered, we were in some 12 markets . We had a large inhouse staff and a sales force of our own there. Large overheads and large number of unprofitable markets led to huge losses.

But, today, we are focussing only on four or five markets such as Spain, Portugal, Greece, the UK and Austria, where we are growing. We have reduced our overall overheads and operations in that market and are doing all the back-end work at India.

We only have our selling operations there. A focussed market reduces your ad spends also. These markets have reached a certain level of sales, which makes it profitable and, therefore, the way forward is really a focused approach.

You have expressed interest in HMT? How is this acquisition going to help Titan if it happens?

HMT is a well-known brand name for watches. Certainly, we believe that there is a large potential at the lower end of the watch market, especially rural India. To give you some interesting statistics, for a billion Indians, there are only 200 million watches.

There are 800 million potential customers. Eighty per cent of the uncovered potential is in rural India. HMT is a well-known brand in rural India. So, if we can use the HMT brand name to be able to tap the potential, there might be some opportunity available for us.

Do you see any strength in their mechanical watches?

The mechanical watch category in India is in the lower end of the price market and has been gradually replaced by the quartz watches. Mechanical watch technology is on its way out. However, in the world market, mechanical watches still exist in the top-end category.

There is a small demand for automatic movements, worldwide, and HMT has some strength there. Their plant may be of no interest; their workforce is a big problem.

We have to figure out how this can be shaped into some kind of viable business opportunity given the strength of their brand, strengths in automatics, a fading hand-wound technology and a large workforce.

Will the brand name continue if you ever acquire HMT? Won't it clash with your brand positioning in the same category?

The attractiveness is the brand name. That would be a part of the deal. We are still waiting. We can work out complimentary positions.

Our position in that segment is `Sonata'. Already, the three brands — HMT, Sonata and Titan — co-exist and are selling. Consumers will hardly know the difference. If you look at the swatch group today, they own brands such as Omega, Rado Longine, Tissot and Swatch, to name a few. All consumers in India buy these five brands, belonging to the same group. So it all depends on how you want to position the brand.

HMT watches are priced between Rs 450 and Rs 700. Sonata falls in this range. Titan starts at Rs 1,000. So, between Titan, Sonata and HMT, there is enough opportunity to configure these three brands in three unique pockets, catering to three unique customers. We can continue to position the brand independently. But we will have to evaluate the business benefit of doing all this against the cost, which will be known when we get the paper.

Are outsourced movements much cheaper than manufacturing your own? Going forward, which option would be more profitable — outsourcing or manufacturing?

There are certain categories of movements such as the functional movements which can be competitively manufactured in India. However, there are certain categories such as the standard plain three hand movement and the six and quarter movement, which are cheaper to import. We import a small quantity, about 10 per cent of our requirements for some of the low-end watch movements.

The reality is Titan is up to the brim in terms of capacity utilisation. We are really in a very good position to be able to choose which way to go, while most other manufacturers in India are not in that position.

The capacity utilisation is between 33 per cent for HMT and 50 per cent for Timex. They do not have the luxury of using outsourcing as an option.

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