Titan Company Ltd (TITAN) Q2 FY22 Earnings Concall Transcript

Titan Company Ltd (NSE:TITAN) Q2 FY22 earnings Concall dated Oct. 27, 2021

Corporate Participants:

C K Venkataraman — Managing Director

Suparna Mitra — Chief Executive Officer – Watches And Wearables division

Saumen Bhaumik — Chief Executive Officer – Eyewear

Ajoy Chawla — Chief Executive Officer- Jewellery

Analysts:

Abneesh Roy — Edelweiss — Analyst

Avi Mehta — Macquarie — Analyst

Rakesh — Rare Enterprises — Analyst

Aditya Soman — Goldman Sachs — Analyst

Percy Panthaki — IIFL — Analyst

Tejas Shah — Spark Capital — Analyst

Nillai Shah — Moon Capital — Analyst

Richard Liu — JM Financial — Analyst

Ashit Desai — Emkay Global — Analyst

Amit Sachdeva — HSBC — Analyst

Vishal Gutka — Phillip Capital — Analyst

Jaykumar Doshi — Kotak Securities — Analyst

Shirish Pardeshi — Centrum Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Titan Company Limited Q2 FY 2022 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to Mr. C K Venkataraman, MD from Titan Company Limited. Thank you, and over to you, sir.

C K Venkataraman — Managing Director

Thank you very much. Welcome, everyone, on the call. It’s been a wonderful quarter two of FY 2022. And I must, at the outset, thank all the members of the large Titan Company family including the members of CaratLane family and including employees, franchisees, vendor partners [Technical Issues]

Operator

Ladies and gentlemen, thank you for patiently holding the line. We have the management reconnected. Over to you, all.

C K Venkataraman — Managing Director

Hello, everyone, once again. So like I was saying, the vaccination levels continued at the momentum at which we have started in Q2, and paved the way for consumer confidence returning. And all the innovations and outreach done by various divisions and functions of the company helped deliver the kind of growth that we declared in the first week of October to the stock exchange that you’re all familiar with. The presentation has anyways been uploaded for you to see, and all our CXOs are here in the call. All the CXOs are here on the call as well as some of my colleagues from the finance department.

So we can actually go ahead with the questions right away.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.

Abneesh Roy — Edelweiss — Analyst

Yes, sir. Congrats on a good set of numbers. My first question is on jewellery. So in studded, there is Y-o-Y improvement, and you have also pointed that versus pre-COVID still it has not normalized, so want to understand when do you see the 38% kind of studded share, which was there say, two years back or say, 35%-plus kind of a number, when do you see that coming back? And any clarity you can give on the wedding phase. You have said it’s higher on both one and two year, but if you could quantify that?

Ajoy Chawla — Chief Executive Officer- Jewellery

Hi, Abneesh, Ajoy here. So you’re asking about studded ratio, and we’ve said that in the recent past a few times that we are really looking at independent growths of gold jewellery and studded jewellery separately. So studded jewellery has certainly grown over pre-pandemic quarter two as well as very handsomely in the — for the last year as well. So it has fully recovered and, in fact, showing growth. Now it so happens to be that gold jewellery continues to show a even higher growth. And therefore, the ratio is looking subdued. Whether the ratio is at 35% or when it will reach 35% in whichever quarter, or 32% whatever number, is very difficult to predict because it is a function of customer behavior.

If people continue to be bullish on gold, they will continue to buy more gold jewellery. Having said that, internally, we are ensuring that we are continuously targeting a high-growth in studded so that the absolute gross margin and overall profit in rupees crores is significantly higher. Second question was on wedding jewellery. We have seen, let’s say, a one percent improvement in the contribution in quarter two on wedding jewellery. If the growth in retail at an overall level is 69%, we are seeing an 81% in wedding over the previous year. And even over the pre-pandemic, if 61% was the overall growth, we have seen a 74% growth in wedding.

C K Venkataraman — Managing Director

Also, Abneesh, just to add to what Ajoy is saying, the studded ratio is not an ultimate KPI. It is an intermediate KPI. The ultimate KPI is the profitability of the business, which is determined by the scale of the gross contribution in absolute crores, like as I said, and the fixed cost, which are sitting below that, which finally deliver the PBT margin. So it’s not an ultimate KPI, and we are chasing growth in studded and not the share of studded.

Abneesh Roy — Edelweiss — Analyst

Sure. That helps. One follow-up on jewellery. So CaratLane, again, had very good sales growth, 95% and profitability also. My question is you are seeing some of the competitors also raise money, for example, Melorra, et cetera. So one, if you could speak on the competitive intensity in CaratLane and how you plan to be ahead of some of these new players who are also getting funding?

Ajoy Chawla — Chief Executive Officer- Jewellery

So you’re right. BlueStone is also expanding at a rapid rate, which is probably a larger and more closer competitor to CaratLane. Melorra has raised some money, but Melorra is still very, very small, and we would still think it’s a long way to go in terms of their scale. The run rate in a particular month might have enabled them to get a higher kind of overall top line. But we see that intensity of — competitive intensity in the category overall is high. All the other players are also expanding in a big way. Orra is expanding, Reliance is expanding, in each of the major players are also launching jewellery for younger target audience in their respective stores, whether it is Kalyan, whether it is Malabar, whether it is Reliance. So overall, there is a good action on the younger piece.

Abneesh Roy — Edelweiss — Analyst

Sure. My last question is on Taneira. So if I see store expansion in the first half, almost across all formats you have added Taneira is one of the few formats where there is not a single store addition. In fact, square feet has been cut by 3,000 square feet. And you have also mentioned that Taneira would have grown marginally versus, say, two years back. So what is the issue of cut in the square feet, and why no addition in the first half versus strong addition in most of the other formats?

C K Venkataraman — Managing Director

Yes. The ambition for Taneira in FY 2023 itself is very, very large, Abneesh. And we will share that very specifically in the next call, hopefully. This — the biggest disadvantage that Taneira has compared to all other businesses is because of its newness it does not have an established customer base, which, unlike other businesses, can dip into even during times like this to grow sales. And Taneira does not have because it’s a very, very young business. And work-from-home situation in the last — not just work-from-home, but live in the home and not go out kind of situation in the last one, 1.5 years with socializing, weddings, all that have come to a very low level of activity. So the demand, the need of sarees has been substantially low. But quarter two performance of Taneira was actually among its best in the last many quarters. But contraction in square feet is — could be more to do with a particular store relocation from a large-format to a medium format. That’s the explanation for that.

Abneesh Roy — Edelweiss — Analyst

That’s very helpful. That’s all for my side. Thanks.

C K Venkataraman — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie — Analyst

Thanks alot for this. Just wanted to understand jewellery EBIT margin a little better. It seems from the 2Q performance that customers are showing an increased preference for new launches because we’ve seen wedding share rising, studded mix lower than 2Q FY 2020, but EBITDA margin jewellery is still higher than what we saw into 2Q FY 2020 adjusted for obviously be bullion sales. If that understanding is correct, a, could you kind of help explain that; b, if that is the case, does that imply that as we move towards a normalization you should see margins probably closing or trending higher than the pre-pandemic levels of 12.5%.

Ajoy Chawla — Chief Executive Officer- Jewellery

So EBIT margins are actually in that range already for the quarter. And as Venkat explained early on, in the previous one, at the absolute gross margin contribution in rupees crores gives scale benefit. So with scale benefits, you’re getting the higher. It is — yes, to some extent wedding and to some — I don’t think about newness as much as people are comfortable paying for designs and making charges, et cetera. So we have been able to sustain our margins at an overall level. But I don’t know whether it is to do with newness as much as to do with the fact that people are happy buying jewellery for adornment.

Avi Mehta — Macquarie — Analyst

No. What I mean by newness is that given that when you pay extra, essentially you’re paying for the design aspect that Tanishq brings to the table, which is what you are highlighting that it has got to do with people willing to pay. And if people are doing that, I mean when we exited FY 2020, we were actually trending at a higher-margin trajectory than what the full year implied. So would that be fair to say that full year FY 2020 is not — we should probably — as things normalize, we should probably close at a higher level?

Ajoy Chawla — Chief Executive Officer- Jewellery

I didn’t follow. When you said full year FY 2020 margins are high, can you clarify what you mean by that?

Avi Mehta — Macquarie — Analyst

So 2Q FY 2020 margins were around 11%, sir, and studded share was around 38%. We are at 30% into 2Q FY 2022, and margins are at 13% in the jewellery segment. In that context, and I’m again removing the bullion assuming there’s not any large contribution from bullion sales.

Ajoy Chawla — Chief Executive Officer- Jewellery

So I think the simplest explanation for that is the growth in top line has been substantial over even the previous — it is a 75%-plus growth. And that has given us scale economy. And despite a lower studded share has given us a much higher EBIT margin. That’s the simplest explanation, nothing more.

C K Venkataraman — Managing Director

That is what we will continue to chase.

Avi Mehta — Macquarie — Analyst

Okay. So — okay. Okay. Fair enough. Sir, the second bit I wanted to kind of just get is if you could give us any sense on — given that watch is — watch business is obviously on scale benefits has started to move back on the margin trajectory, any guidance on where do you see this trending any — for the full year or more importantly, for FY 2023? What would you target?

C K Venkataraman — Managing Director

Actually, we are focusing rather more on making the analog watch category much more interesting to customers, exciting to customers, investing in various forms of transformational programs to grow because the company is in a very good position to sort of get all the cylinders firing at the same time. So honestly, the portfolio aspect is what I would bring in here, and we would invest in the growth for the watch business in the next few quarters and get the results thereafter rather than worry about margins now.

Operator

Thank you. The next question is from the line of Rakesh from Rare Enterprises. Please go ahead.

Rakesh — Rare Enterprises — Analyst

Good evening, friends. Actually, in my 20 years of ownership of Titan chain, I’ve never seen a quarter like this. What a quarter! My deep heartfelt congratulations, Mr. Venkataraman, his team, and all Titanians.

C K Venkataraman — Managing Director

Thank you very much.

Rakesh — Rare Enterprises — Analyst

Congratulations are on the way, I would say, but I have a few questions. See, the watch division has done, in my opinion, our highest ever quarter still, ever done in this industry. I am not wrong, and this has happened in a non-festive quarter because generally, your highest sales comes in the third quarter in markets. So do you think maybe it’s a trend or it’s a one-off? And as we work and the performance of the eyewear division with a 23% margin and INR170 crores is not a very high sales figure. So I mean how do you see that in future? My third question on the jewellery division is that we’re expanding from 353 stores, we are going to 368 in six months, you added 16 stores. So what is the amount of stores we hope to add in the next six months and in the next 18 months?

Suparna Mitra — Chief Executive Officer – Watches And Wearables division

Okay. I’ll go first. Hi, Rakesh, this is Suparna here. Yes. So watches, yes…

Rakesh — Rare Enterprises — Analyst

Congratulations, Suparna.

Suparna Mitra — Chief Executive Officer – Watches And Wearables division

Thank you, sir.

Rakesh — Rare Enterprises — Analyst

What a very, very good performance.

Suparna Mitra — Chief Executive Officer – Watches And Wearables division

Thank you. Thanks a lot. Yes, quarter three also is something that we are looking forward to. So now with all cylinders firing, all stores open, all channels doing well, whether it is multi-brand or our EBO format, we hope to continue this streak. We are finding consumers back in the market. We have put up very good campaigns, very good collections, which are bringing out customers, and customers are choosing our brand especially Titan in preference to many others. We’ve gained a little bit of market share in some of the multi-brand formats. So things are looking good, and we hope to continue this winning streak.

Rakesh — Rare Enterprises — Analyst

Another question I want to ask you is, don’t you think we’ll see a natural improvement in margin because of scale and in margin, I may invest more probably if my sale goes for INR400 crores and INR700 crores because you’ve a high-fixed cost in the company in the Watch division. So you’ve got a very big advantage of fixed costs when the sale will go up. So that should lead to a natural improvement in your margins.

Suparna Mitra — Chief Executive Officer – Watches And Wearables division

It will. We are focusing on growth. We are chasing growth. We are chasing increase in market share, increase in customers, increase in revenue. And what you said is right. The moment our fixed costs are covered, everything else is only going to go straight to the bottom line.

Rakesh — Rare Enterprises — Analyst

In your investment you may increase the advertising or you may lower the watches, you may the price or you will increase the content of a watch? A contribution of sales less material is not going to go down, and with volume increase, you are going to get a lot of advantage of further fixed cost will remain the same and you have high fixed costs. I think you have to have a deeper study of why even after investing — in spite investing for further growth, we should get better margins if you get volumes.

Suparna Mitra — Chief Executive Officer – Watches And Wearables division

Yes. Totally agree.

Rakesh — Rare Enterprises — Analyst

I’m not complimenting myself, and anyways, we’ll discuss it offline.

Suparna Mitra — Chief Executive Officer – Watches And Wearables division

Sure, sure.

Rakesh — Rare Enterprises — Analyst

And I have a question for the CEO of the eyewear division. How do you look to elevate the sales growth? I mean, do you see it continue at 20%, 25%, 30% or you feel it’s better and there’s a lot of scope and there’s a lot of scope to open new shops?

Saumen Bhaumik — Chief Executive Officer – Eyewear

Hi, Rakesh. This is Saumen.

Rakesh — Rare Enterprises — Analyst

Yes. Congrats. What a performance.

Saumen Bhaumik — Chief Executive Officer – Eyewear

Thank you. Yes, so we are going to expand footprint significantly. I mean another 15 months, we see a huge number of store addition now that we have a good business model as well as…

Rakesh — Rare Enterprises — Analyst

How many stores?

Saumen Bhaumik — Chief Executive Officer – Eyewear

We are hoping to add another 250, 300 stores in another 15 months or less.

Rakesh — Rare Enterprises — Analyst

So 50 stores.

Saumen Bhaumik — Chief Executive Officer – Eyewear

250 stores.

C K Venkataraman — Managing Director

250 stores.

Rakesh — Rare Enterprises — Analyst

250 stores in three months?

C K Venkataraman — Managing Director

In 15 months. 12 to 15 months.

Rakesh — Rare Enterprises — Analyst

12. And the other problem is because the tanking brand is selling more, it is most profitable, and because we’re able to sell more lenses?

Saumen Bhaumik — Chief Executive Officer – Eyewear

Yes. So actually, the profitability has improved partly because it has actually a product mix, more focus on house brands therefore Titan brand, Fastrack brand and so on. Second is the channel mix that we have somewhat altered. Some of the more expensive channels, either we have done away with or we have controlled the way sale happens today. Combination of these two has brought us to 20-plus.

Rakesh — Rare Enterprises — Analyst

And a very tight control on discounts?

Saumen Bhaumik — Chief Executive Officer – Eyewear

Yes. No, actually, we had no — last 18 months, we had no activation, no discount sales, and so on and so forth. And we believe in a category which is basically a need-based category, we don’t have to go back to that. We — at least 90% of that will definitely stay. So overall, I’m not really forecasting, but 18% to 20% I think would be a sustainable kind of a profit margin.

Rakesh — Rare Enterprises — Analyst

And also today, the organized eyewear market is a very virgin market where there is only over 10%, 15%, 20% is organized. So there’s a long way to go.

Saumen Bhaumik — Chief Executive Officer – Eyewear

Yes.

C K Venkataraman — Managing Director

Yes. So even — Rakesh, the last 18 months, Saumen and team have spent on actually transforming the operations of the business and extracting value from the business. And now they are — in the next 18 months, they’re looking at substantial growth, which we will specifically share later. But he gave an indication from the network expansion side. And therefore, investments will be required for that because as, like you said, the share of organized is lower the upside. The headroom for growth is huge. This category is only going to get bigger and better. And therefore, the next 18 months is a lot of focus on growth as well. So even as Saumen is sort of hinting at the kind of margin, but the growth will now start coming in for a greater focus, and it will dilute the margin to some extent.

Rakesh — Rare Enterprises — Analyst

And Venkat, I must tell you one thing, I used Titan lenses earlier sold at expensive INR60,000, INR70,000 lenses. High offer on Titan lenses is really good. Congrats, I tell you. Saumen, you’ve done a very good job. I really feel happy.

Saumen Bhaumik — Chief Executive Officer – Eyewear

Thank you.

Rakesh — Rare Enterprises — Analyst

I had a question for jewellery division. See, you’re inventory in jewellery is about INR78,000 crore and the loan on gold is INR4,700 crores. That will give a final 3,300 stock to your loan money. Why don’t you increase the lease on gold, gold lease and then we reduce the cash — increase the cash?

Ajoy Chawla — Chief Executive Officer- Jewellery

So we are following a principle of around the targeted percentage of gold on lease as a percentage of the total inventory. If it becomes too high, there’s a lot of lumpiness in the cash flow management on the one hand. And on the other hand, there is always a little bit of risk of dependence on GOL. But we are following a targeted proportion to optimize the cash flow.

C K Venkataraman — Managing Director

Also, Rakesh, one of the biggest drivers of growth in the — for us is the exchange programs. And the exchange program — and we have to buy — we buy gold from the customers, jewellery from the customers, and that’s on cash. And therefore, that will certainly determine the balance only is in the gold on these as can get only so much smart on the sort of converting that cash but gold — with cash into GOL. Beyond a point, we will not do that.

Rakesh — Rare Enterprises — Analyst

And what is the plan for opening of shops for Tanishq?

Ajoy Chawla — Chief Executive Officer- Jewellery

Yes. So we are — we’ve opened 50 net shops.

Rakesh — Rare Enterprises — Analyst

Yes, I saw that. What do you think you will have opened in the next six months and in the next 18 months?

Ajoy Chawla — Chief Executive Officer- Jewellery

Yes, next six months, we are looking at 20-odd stores. And 18 months, I don’t have a view, but we will be developing a view. Typically, we’ve been adding 30, 35 stores every year. When we do the business plan, we’ll have a better idea.

C K Venkataraman — Managing Director

That kind of momentum should continue.

Ajoy Chawla — Chief Executive Officer- Jewellery

Yes. We should…

Rakesh — Rare Enterprises — Analyst

But if you’ve maxed out India, how many stores can we open? All over India you have maxed, maybe take four years, maybe take five years but if you map out India there is a place where Tanishq store is openable?

Ajoy Chawla — Chief Executive Officer- Jewellery

So we are currently at 370 odd stores as we speak. By the time we end the financial year will be around 390 in Tanishq. Now, I think from a three, four-year horizon perspective, certainly the number of towns that are available in middle India are huge. So…

C K Venkataraman — Managing Director

500.

Ajoy Chawla — Chief Executive Officer- Jewellery

500-plus [Foreign Speech], maybe more also. We have to do the strategy.

Rakesh — Rare Enterprises — Analyst

And because with time a lot of towns are developing, so a lot of non-developing, non-criterion stores also — towns also come into the criteria because growth is coming so fast.

Ajoy Chawla — Chief Executive Officer- Jewellery

Yes. Right, Rakesh.

Rakesh — Rare Enterprises — Analyst

Anyway, Ajay, congrats on a fantastic performance. I mean, I’m really overwhelmed by the result and your performance. Congrats once again.

Ajoy Chawla — Chief Executive Officer- Jewellery

Thank you.

Rakesh — Rare Enterprises — Analyst

I’m only hoping it will continue and I hope it does. Thank you so much, and congrats once again.

C K Venkataraman — Managing Director

Thank you.

Operator

[Operator Instructions] The next question is from the line of Aditya Soman from Goldman Sachs. Please go ahead.

Aditya Soman — Goldman Sachs — Analyst

Hi. Good evening. Just one question. In terms of — you talked right now about the exchange program. Any sense on what proportion of your sales are made through the exchange program? And going forward, how do you see that panning out? So was it exceptional in this quarter, or do you think the exchange program would the percentage of sales that we’ve got in quarter is something that you expect to see over the next few quarters as well?

Ajoy Chawla — Chief Executive Officer- Jewellery

Yes. Aditya, the gold exchange program contribution actually is still to catch up as a percentage. Pre-pandemic quarter two, it was 40%. Last year, it was 33%. This year, it’s still at 31%. I think it’s linked to multiple things, it’s linked to people’s outlook on gold. It also is linked to wedding purchases. So we think it should get back to 40% over a period of time. But frankly, right now, in the last two years, we are seeing people are hold — hanging on to the gold they have. And maybe it will take a little longer to catch up.

C K Venkataraman — Managing Director

Maybe just to add, they have savings in hand of last 18 months. They really did not exchange gold, they can actually take out money and buy. Maybe something of that is also happening.

Aditya Soman — Goldman Sachs — Analyst

Understand. Thank you.Thank you.

Ajoy Chawla — Chief Executive Officer- Jewellery

That lever could play out a little differently as we go forward. Can’t predict actually.

Operator

Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead.

Percy Panthaki — IIFL — Analyst

Hi, sir. I just wanted your view on the consumer behavior here. So this is a category where demand can easily be postponed at least to a significant extent. So if I look at the pandemic period, I mean the five quarters also even March quarter of FY 2020 was also affected. So taking all those five, six quarters into consideration, if there was no pandemic and the growth had continued as normal versus the growth that you actually saw, the differential between this is quite material. They would be anywhere between INR4,000 crores, INR5,000 crores of sort of lost demand.

So just wanted to get your view as to how you think about this, what percentage of this can come back, what demand can be postponed, what is lost forever because Indians also use gold jewellery as a store of value? And subconsciously, my view is that over a three, four, five-year rolling period, they want to park some amount of money into gold jewellry. And therefore, this lost demand can actually come back to a large extent. So your take on that, please, sir.

C K Venkataraman — Managing Director

Very complex question. Honestly, the answer is not at all easy. We have no such view on it, honestly. We’re taking the quarters as they come and maximizing the opportunity as it exists around us in the quarter rather than really examine what the question that you’re raising. Yes.

Ajoy Chawla — Chief Executive Officer- Jewellery

I’ll give you one top-level further response. There is obviously some pent-up demand. There is some share of wallet gains. And then there is some readying demand, which does get deferred here and there. But beyond that, it’s very difficult to conclude on what you said.

Percy Panthaki — IIFL — Analyst

Right, sir. Second question is in terms of your volumes, how do you see those recovering because ultimately, over the last two, 2.5 years, the gold price has inflated like 50%-plus. Now I know that a consumer has a particular budget in mind, et cetera, and therefore, he sort of takes a hit on the volumes. But is it exactly a 1:1 is correspondence, or there would be at least some benefit of the gold price going up on your overall revenues?

Ajoy Chawla — Chief Executive Officer- Jewellery

Yes, true. This quarter, the kind of growth that we have declared, there is obviously a certain ticket value increase due to gold price of around 25%-plus. The rest of it is volume, whether you look at buyers or you look at grammage. So we are seeing a very healthy revival on higher growth, and we spoke about it earlier. Higher growth is a more closer representation for volumes for us rather than grammage. But having said that, this quarter, grammage has also grown significantly.

C K Venkataraman — Managing Director

So part of it would be pent up, part of it is also market share gain that we are continuing to make in multiple — many Indias where we are competing, which is leading to the volume growth.

Operator

Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital — Analyst

Hi. Congrats on a good set of members, and thanks for the opportunity. A couple of questions. First pertains to ad spend. Ad spend still is indexing lower than pre-COVID levels despite a very good momentum in the business, so any preset there or any insight if you can share on that, first?

C K Venkataraman — Managing Director

I think one of the largest points here is a huge growing discovery of the role of digital role of customer relationships, which we can capitalize on for growing sales rather than the typical mass marketing approach of earlier years. I think the COVID situation has helped us appreciate every crore, every INR10 lakh, how it can be spent very, very effectively. And therefore, the assessment of the advertising as a weapon has — is undergoing — constantly undergoing substantial changes. Even the — for example, the expenditures that we are making in to create a film, more and more films are being seen on small screens, which are just three inches wide, and therefore, the budgets for these firms are, I mean 1/20, 1/50 and all that kind of thing. Multiple things are happening to reduce advertising but still deliver exceptional effectiveness.

Tejas Shah — Spark Capital — Analyst

So, Venkat, should we see this as a permanent reset or is it still under deliberation?

C K Venkataraman — Managing Director

Because we’re also pushing growth, so just giving an overall sense of the share of digital and more targeted communications on the one hand, the cost of digital performance marketing and all that, the role of incycle relationships and the analytics in unlocking sales opportunities is not that — now we have permanently brought down the advertising percentage sales to a lower level. I’m just giving you a perspective here. These are all dynamically evolving subjects and the divisions will take their view depending on the situation.

Tejas Shah — Spark Capital — Analyst

Sure. And second question on staying with digital, e-commerce saliency in Watches segment has actually increased to a very healthy level of 25%. So just wanted to check if it is driven by change in mix in favor of more variables, a; and how should we see the contraction in footprint in World of Titan’s in relation to this change which you are seeing in favor of digital in watches?

Suparna Mitra — Chief Executive Officer – Watches And Wearables division

So firstly, it doesn’t have anything to do with variables. I think our analog watches are doing very well online, both in the marketplace platforms as well as our own brand e-commerce site. The — quarter two was a little unusual because there was a lot of pipeline filling in some of the big e-commerce sites in anticipation of the big Diwali wave. So it will kind of get evened out in quarter three. Having said that, we have now a very strong presence in e-commerce and doing very well there in our analog watches. Store expansion is something that is continuing. In fact, for us in the World of Titan chain, we are more focused on renovations and making the stores much more modern and much more premium.

So yes, store expansions are there planned for the second half. But equally important, very major transformation journey of the look and feel of our World of Titan as well as Helios stores, which will allow for a much better consumer experience and sale of more premium products. So that’s where it is. So e-comm will continue to be strong. Maybe Q2 is a little overstated. It will probably get evened out in Q3. And we continue to be very strong and investing a lot in our on-ground presence.

Operator

Thank you. The next question is from the line of Nillai Shah from Moon Capital. [Operator Instructions]

Nillai Shah — Moon Capital — Analyst

Hi, Venkat, just one question from me. In terms of the business going into the festive season, now that a large part of it is behind us, can you share some numbers as to how the jewellery business has performed into the festive season this year?

C K Venkataraman — Managing Director

Very happy with the results about the — on the build-up to the Diwali season. And not really going to share numbers on this call. Is it — sorry, is it Nillai?

Ajoy Chawla — Chief Executive Officer- Jewellery

Nillai.

Nillai Shah — Moon Capital — Analyst

Yes.

C K Venkataraman — Managing Director

Yes. The performance has been very, very good and very, very satisfying, but we’re not sharing any numbers on the call.

Nillai Shah — Moon Capital — Analyst

Okay. And we haven’t heard from you for the full year guidance because of the postponement of our meet this year. Anything you want to share going forward as to what the aspirations are for the business?

C K Venkataraman — Managing Director

No, nothing really, Nillai. I think just like — last year also we had a certain view about how we will build the — from our recovery we’ll come into our growth phase and all that quarter-by-quarter. I think this year, it’s looking better than — the rate of recovery for last year as Q2 has shown, even in the most discretionary of our businesses. We are pretty gung-ho about Q3 as well as Q4, but not really giving our guidance for FY 2022.

Nillai Shah — Moon Capital — Analyst

Okay. Got it. And just one small question. In terms of the gold on lease part, I understand that a fairly large percentage of our gold is basically from exchange from customers. Now as you think out in the next three to five years, this value will keep moving up quite dramatically. Why is it not possible for us to get that gold on lease and do a sale back into the market and then shift back onto the gold on lease because the gap between holding that versus essentially, gold on lease will be a good five, six percentage points. So just wondering why that is the case beyond just the overdependence on gold on lease? And does Digital Gold in the long-term solve that problem?

Ajoy Chawla — Chief Executive Officer- Jewellery

Okay. Yes, as you would know, that almost 50% gold sourcing is through gold on lease and 30%, 35% is exchange program, but the rest of 10%, 15% is still on this part due to depending on everyday economics. There is a team which evaluates those economics, which method is fine. But one thing which we believe that we are in the business of buying gold and adding value, and converting that into jewellery, and reaching — satisfying our consumer needs, we don’t want to be — and for inventory management, we do resort to bullion sale, which you see in every quarter. Like this quarter it was INR192 crore, which we sold. And of course, that got replenished through GOL, but it is more for the inventory management sometimes. We don’t want to, at this point of time, kind of make it a very, very active buying and selling of them. So that’s the current situation.

C K Venkataraman — Managing Director

Also, in reality, what will happen. And if — for example, the entire gold that we exchange, supposing we were to convert into GOL, that sales will come at 0 margin. And therefore, the enterprise is — or certainly starting with the division, the EBIT margin of the division will just plummet with a very 50% share of sales with 0 margin kind of thing. So I mean, what is the significance of that? So it’s — I mean, one way it means you win, one way you lose kind of thing.

Ajoy Chawla — Chief Executive Officer- Jewellery

And then, yes, there are other issues also. Sometime we can discuss like GOL is typically through import route. So it requires too much cash — on the gold imports in India and…

C K Venkataraman — Managing Director

The corporate responsibility is to actually reduce that aspect as well.

Ajoy Chawla — Chief Executive Officer- Jewellery

Yes.

Operator

The next question is from the line of Richard Liu from JM Financial. Please go ahead.

Richard Liu — JM Financial — Analyst

Hi. Good evening everyone. Just want to check if I’m audible.

Operator

Sir, I would please request you to speak a bit louder.

Richard Liu — JM Financial — Analyst

Okay. Yes. Sorry about that. I want to just go back on these watches versus eyewear margin question, I think that was discussed a bit earlier. And the way I was looking at it is that you made about 23% margin on eyewear. And what I — what people fail to understand at one point in time is that both watches and eyewear had broadly similar level of gross margin, right? I mean, if that be the case, how are you able to extract 23% margin from a business, which is 20% or 25% the size of the watches business? And the watches division is not able to come anywhere near that number despite a much, much bigger scale? I understand there’s an aspect of manufacturing assets, et cetera, but is there a lesson for you to draw upon from the eyewear margin experience and juxtapose it to the watches business here onwards?

C K Venkataraman — Managing Director

It’s not an easy question to answer on this call because obviously the fixed cost aspect, not just the manufacturing, but multiple fixed cost aspects of the watches division are sitting between the gross margin comparison that you’re making in the final profit margin, including things like advertising and all that. So it’s honestly a difficult question to answer. And I also said that the exceptional profit margin of the eye care division in Q2, let’s not take that and take it into the future saying this is the new level because we also want to invest substantially in growing because the scale of this business, given the opportunity in the market, is small, and we want to invest. And you will not see that kind of margin coming back for the next few quarters at least.

Ajoy Chawla — Chief Executive Officer- Jewellery

If I may just add, Venkat. But the fact is that over, last six quarters, there has been a structural change in kind of eyewear business profile from the gross margin perspective, and Saumen talked about more in-house brands, lenses, the channels, which were kind of expensive, streamlining on that. So there has been a structural change, which is going to be permanent. But for the growth, whatever investment is needed in the future, may not lend itself to 22%, 23% for next few quarters. Watches is a steady business, I would say, at this point of time, so they are maintaining their gross margin. And once they really grow, growth would be the biggest lever for their margin expansion.

Richard Liu — JM Financial — Analyst

Two comments here, if I may. Forget about 23%, even if I talk about 18% to 20%, I don’t remember the watches business ever making that kind of a margin in the past, right? And second, if you can just help me a little bit out here. Is my understanding correct that both these businesses have broadly similar gross margin or have things changed significantly after the recent restructuring that you’ve done? Thank you.

Saumen Bhaumik — Chief Executive Officer – Eyewear

We don’t give kind of gross margin numbers for business. But at this point of time, over the last six quarters, eyewear has gone up, gone better than budget.

C K Venkataraman — Managing Director

Also, there was a — because of the situation in which eye care division was in FY 2020, it was a loss-making division. Substantial transformational initiatives were undertaken to extract value, and you see the results. The watches is a profitable division. And sure, it was not at 18%. Yes, but it was at 13% and 14% and 15%. And the pressing nature of the situation in the eye care division was very much not there. And we are not feeling it like you may be feeling it because we look at it as a portfolio. We want to invest, continue to invest in the watches division.

Operator

Thank you. The next question is from the line of Ashit Desai from Emkay Global. Please go ahead.

Ashit Desai — Emkay Global — Analyst

Yes. Hi. Thanks for the opportunity. I just wanted some thoughts on any kind of gains that you’ve seen from hallmarking? And also any trends in terms of market share gains that you can quantify?

Ajoy Chawla — Chief Executive Officer- Jewellery

Ashit. Ajoy here. So at this point, I think it will be very premature to assume any gains on account of hallmarking largely because the deadlines have been pushed back to post Diwali, et cetera. And even that there were some noise around HUID and tracking, et cetera, and the software issue. But I think because it’s got pushed to post-November or post-Diwali. Right now, I don’t think it would be right to assume any market share gains. In the future, how things pan out, we will see. In terms of overall market share gains, while there is no formal industry numbers, but we track based on city by city, region by region, and we compare with regional players as well as national players.

Overall, our sense is we have gained market share across virtually every region and every city to varying proportions. Some places much higher, some places little lower. But overall, it’s difficult to gauge because every player in the industry seems to have grown very well in the quarter that’s gone by whether it’s a small independent or a local chain or a national chain. So everybody has grown. The relative growth might vary, and therefore, the market share gains may — we’ve kind of grown a little faster than the others. As percentage-wise, it would be very difficult.

Operator

Thank you. The next question is from the line of Amit Sachdeva from HSBC. Please go ahead.

Amit Sachdeva — HSBC — Analyst

Hi. Good evening everyone. And thank you for taking my questions. Congratulations on very good sort of numbers. So I have a question for Ajoy, more conceptual than any quantifiable thing that I want. But I would — as I understand, Ajoy, jewellery as a category, my hypothesis is that category is with a large network effect, given the brand is not visible and consumer wears such aspirational brands such as Tanishq. So there’s a large tendency for consumer to talk about it, talk about to others when they buy it. So my question is that do you measure network effect as you become larger and larger, and are we at that tipping point where network effect is actually helping you grow much faster?

And if yes, are you using that as a part of consumer recruiting strategy, or is it something that is more visible that was not visible in the past? I mean if you can talk about some of that experience, that will be very helpful.

Ajoy Chawla — Chief Executive Officer- Jewellery

Okay. We haven’t thought about it in the form of network effect and word-of-mouth. Surely, word-of-mouth has been going up. Our overall visibility and presence across many cities in the country has certainly gone up. We are now there in 220 plus towns, and we’ll continue to drive growth, not just towns also catchments within certain towns. So that is certainly helping us. And therefore, the scale benefits that we are seeing on account of, let’s say, the disproportionate growth in top line with small growth in marketing investments. Other than that, I’m not able to currently articulate specific network benefit effects.

See, the other benefit that I can share is our organic growth on that side has been quite good. Yes, we do digital marketing. We’ve seen a 20% jump in the unique visitors on our website over last year if I were to think of it. And of course, that also indicates a certain degree of interest in the brand. But other than that, I can’t see. Golden Harvest is the other one, which is where you consider the network benefit, but I don’t know whether it’s a network effect the way you have articulated.

C K Venkataraman — Managing Director

Amit, certainly, we have spoken about this, not on the call, but within the company for many years, which is the role of retail as the face of the brand. And as the number of stores are — we are setting up across the country. And Tanishq has got some of the best every — in every city in every location, the store has the brand as well as the customers and the customers as the goodwill ambassadors of the brand. If you look at the share of advertising to sales trend, we have certainly kept this as an angle to keep reducing the share of advertising spend over time and implicitly recognizing that the network plays a role.

Operator

Thank you. The next question is from the line of Vishal Gutka from Phillip Capital. Please go ahead.

Vishal Gutka — Phillip Capital — Analyst

Yes. Hi, Team. Congrats on a good set of numbers. I have two questions. Our ground feet suggests that Tanishq has started a pilot project of renting jewellery. If you can just help us with the outcome and opportunities and challenges in further scaling this up? And secondly, if you can just elaborate on Digital Gold, can you kindly give more details how that is similar to Gold Harvest scheme and any particular incentives or benefits we are giving customers to pick up this plan?

Ajoy Chawla — Chief Executive Officer- Jewellery

Yes, Hi,Vishal. So Caratlane is actually piloting a rental project through a sub-brand called Audorn, A-U-D-O-R-N. And on rental for — the jewellery on rent. Very early days, still learning that to start flowing in. We will understand how customers are behaving, who is buying or who’s renting, and what kind of stuff and then decide whether it’s — how to scale it and whether even we consider it for Tanishq, et cetera. So it’s very early days. On Digital Gold, it is not at all Golden Harvest-like. But as such people can choose to buy a certain quantity of gold or certain value. As low as even INR100 they can put in. So it’s really up to them. There is no return implicit in it unlike Golden Harvest, which is a more structured program. Digital Gold, we have seen good traction. Currently, of course, we have a tie-up with SafeGold and kind of people can access SafeGold, Digital Gold through our website.

And they are the ones who are in invoicing, et cetera. But there is a tie-up with them. We are seeing good traction. We are seeing a fairly large number of customers showing interest and a younger profile of customers and people who typically, at a time, maybe buying a couple of grams of gold at best. Of course, it varies. There’s a dispersion in that as well. So early days, but we think it’s an opportunity to recruit customers of a certain profile. In terms of offers and benefits, now the rate of gold — the Digital Gold is different from the gold rate in our stores. So at the time of redemption, we made it a seamless experience. In order to enable this customer to buy a Tanishq jewellery, we do give a certain offer so that they don’t feel that there’s a huge difference between the rate of gold at which they have been able to redeem their Digi Gold versus the gold rate in that particular store.

So to that extent, they feel they can convert most of the grams they have in Digital Gold onto jewellery. So that’s what we’re doing right now, and we are starting to see good redemptions as well. So again, it’s a nature of pilot, learning, and interesting insights emerging but early days.

Operator

Thank you. The next question is from the line of Jaykumar Doshi from Kotak Securities. Please go ahead.

Jaykumar Doshi — Kotak Securities — Analyst

Hi, Thanks for the opportunity. And congratulations on a good quarter. I just have one question. We are seeing 13% EBIT margin for jewellery business after several quarters, and you — over the past couple of years, you had the program to sort of for cost savings call war on sort of costs. So I just want to — the question I have is, is 13% EBIT margin in jewellery business kind of a base margin if you clock close to INR6,000 crore revenues a quarter, and should we expect that to move higher as mix improves? And if so, when you get back to normalized mix of — Pre-COVID mix of studded and gold, can this margin — EBIT margin be 14%, 14.5%?

And I’m also assuming that the quarterly run rate — revenue run rate with also absolute revenues will move up from INR6,000 crores to maybe INR6,500, INR7,000 crores? And the idea of asking this question is, if I look at your December quarter performance, last December was again a quarter with INR6,000 crores-plus revenues in jewellery business. And yet margins in those quarters — in that quarter was 12%. So just trying to sort of understand what is the sustainable margin that we should build going forward?

Ajoy Chawla — Chief Executive Officer- Jewellery

Right. So I think, firstly, comparing it to quarter three of last year, the target ratio differs. And quarter two and quarter four typically is a higher studded ratio relative to quarter one and quarter three because of the activation we’ve on studded. So kind of alternates between quarters. So it may be inappropriate to say, look at 13% as sustainable. It will depend. Now if you go back and see quarter four of FY 2020, we saw 14%. If you see quarter three of FY 2020, 13%. So there are various margins that we are seeing. But I think on a annualized basis, somewhere between the 12% to 13% range seems sustainable. If our numbers jump significantly in top line on a quarter-to-quarter basis then, of course, we will start seeing more benefits on scale. But at this level, I would say, 12% to 13% is a reasonable margin to expect.

We don’t want it to be very, very high also because invariably, I think the headroom for growth is huge. And therefore, continuously investing in the business for growth is important. And therefore, absolute rupees crores that we are able to kind of clock in is more important. So we would rather say that the top line growth focus will continue to be the top priority. As long as we are able to deliver this between this 12% to 13% somewhere, that’s fine.

Operator

Thank you. The next question is from the line of Shirish Pardeshi from Centrum Capital. Please go ahead.

Shirish Pardeshi — Centrum Capital — Analyst

Hi, Venkat, Ajoy, Good evening. Thanks for the opportunity. I have two questions extending on the digital part. This experiment what we are trying to do as a pilot, I know it has just started about 1.5 months before…

C K Venkataraman — Managing Director

Could you just speak a little louder and repeat what you said, please?

Shirish Pardeshi — Centrum Capital — Analyst

My question is on Digital Gold pilot what we had done. What I wanted to understand to get some sense that, which is — I mean, of course, in the press release, you have said that it is the younger generation, which is getting hooked on. But initial benefit saying that what is the opportunity which you are looking for next two to three years, or is this again one more platform, which we are trying to engage with the customer?

Ajoy Chawla — Chief Executive Officer- Jewellery

So it is one more platform for recruiting customers and a certain profile of customers, let’s say, digital savvy. Many of them young, but not all necessarily young but certainly digital-savvy customers. And those who would be able to invest in small amounts, INR100 is the lowest they can go and invest in. So it is that profile of customers and we think it can be a good opportunity. We are also trying to see how big this is. But in the interest, we are quite happy about it. And it is continuing. The pilot is continuing and will continue for the next few months before we conclude on how much to scale.

Shirish Pardeshi — Centrum Capital — Analyst

Ajoy, I got that. What I was trying to ask is that, is there a limit to which the customer can add the gold quantity on a monthly, daily or yearly, or it will continue?

Ajoy Chawla — Chief Executive Officer- Jewellery

There’s no limit. It is a customer’s choice. They’re just holding the gold in a immaterialized format. The gold is being held by them — held for them in trust through a vaulting arrangement, which currently entire thing is managed through SafeGold and there’s a separate trust. So they can hold as much as they want.

Shirish Pardeshi — Centrum Capital — Analyst

So we will not have any impact on our balance sheet?

Ajoy Chawla — Chief Executive Officer- Jewellery

No, it has nothing to do with our balance sheet because we are not even invoicing the gold right now.

C K Venkataraman — Managing Director

Right now we are mostly facilitating and providing an interface. All the custodians, trusties, et cetera is someone else’s balance sheet.

Shirish Pardeshi — Centrum Capital — Analyst

And this is in Bangalore?

Ajoy Chawla — Chief Executive Officer- Jewellery

The vault itself? Yes. It’s across. So it’s not only one vault, but they have different vaults built in.

Shirish Pardeshi — Centrum Capital — Analyst

Okay. Just a quick word on CaratLane. If you can talk about online, offline, I mean, we have done a fantastic job there. But how do you see near-term once the things start changing if the consumer traffic is also moving to online back?

Ajoy Chawla — Chief Executive Officer- Jewellery

I think both online and offline have done very well. Of course, offline has recovered, and therefore, the growth in offline has been better in quarter two. But online continues to be very strong and powerful. So we are seeing a fairly good balance there. That ratio there is continuing pretty well. And good outlook. We are very, very bullish on CaratLane growth. Hopefully, it should continue, and we are confident it will.

Shirish Pardeshi — Centrum Capital — Analyst

Could you spend a minute on profitability part, how it is shaping up now?

Ajoy Chawla — Chief Executive Officer- Jewellery

Profitability is good. Gross margins are stable and good. As the scale is going up, the EBIT margin is also there, it is profitable. It has been a profitable quarter for CaratLane. And we had broken even last year, so this year should be growth going forward.

Shirish Pardeshi — Centrum Capital — Analyst

Wonderful. Thank you, And all the best.

Ajoy Chawla — Chief Executive Officer- Jewellery

Thank you.

Operator

Thank you. Ladies and gentlemen, that is the last question for today. I would now like to hand the conference back to the management for closing comments.

C K Venkataraman — Managing Director

Thank you very much, everyone, as always for the probing questions and continuous support and encouragement. So till we meet again, bye-bye.

Operator

[Operator Closing Remarks]