Just how can a Rs 690-crore company, whose flagship business is trapped in the throes of a recession, nurse ambitions of hitting sales of Rs 5,000 crore in five years? That's the goal the top brass at watch manufacturer Titan Industries are harbouring, although you won't find them going to town with that target. After all, expectations of an over seven-fold spurt in five years aren't going to find too many takers-not when Titan's bread-and-butter business of watches is barely growing, at 1-2 per cent. Not when the turnover of the Bangalore-based company founded in 1986 actually dropped last year, from Rs 697 crore in 2000-01.

But then whoever said anything about Titan counting only on watches to propel it into the big league! The impetus for that huge step-up will come from the jewellery business, branded Tanishq, which last year pitched in with all of 40 per cent of Titan's turnover. Four years back that contribution was just 14 per cent. And there's huge potential for further growth, as Jacob Kurian, Chief Operating Officer, Tanishq, points out: "The jewellery market is estimated to be worth Rs 40,000 crore. If we could capture even 5 per cent of this pie, that would account for Rs 2,000 crore-which is bigger than the entire watch industry, which is worth Rs 1,500 crore!"

Kurian's sixth-floor office in Golden Towers on Bangalore's busy Airport Road reflects the zest and bounce at this eight-year-old division. The walls are painted canary yellow and the moulded furniture is splashed with dizzying shades of blue, orange and red.

Jacob Kurien, COO, Tanishq: If he's smiling, here's why...

If Kurian, who headed Tata Unisys' US operations before Tanishq, appears full of beans, it isn't without reason. He's helped Titan make the transition from a watchmaker-dabbling-in-jewellery to a respected jewellery brand. His division has been growing at a compounded rate of 45 per cent for the past five years. Kurian's even made the division profitable since 2001-before that it was widely looked upon as an albatross around Titan's neck-and today is well on his way to wiping out the accumulated losses of Rs 35 crore. As for the competition, he isn't too worried, as "the nearest player is not even 10 per cent of our size."

Kurian is now on the verge of taking another step forward in completing the transition at Titan. He's found another avenue for growth in traditional silverware, which he estimates to be a Rs 5,000-crore market. "There are players who are addressing only the very top end of the market. Our aim is to provide consumers both gold jewellery and silverware so that the link to traditional goldsmiths is broken and we are able to cater to all their jewellery needs under one roof."

But What Of Watches

All these initiatives away from the watches division don't, however, mean that Titan is de-emphasising that business. It can't afford to. "This is where the company makes money, and the growth in this segment is important to us," explains Vikram Rajaram, Vice President & Chief Corporate Affairs Officer, Titan.

Sales of watches may be down-from Rs 494 crore in 2001 to Rs 424 crore last year-but fact is, Titan depends largely on watches to shore up its bottomline. Gross margins in this business are as high as 12 per cent, as against just 4 per cent for jewellery. Despite the fall in sales, Titan still dominates the organised watch market, with every second watch sold being a Titan. Bhaskar Bhat, Managing Director, Titan, shrugs off the sluggishness in the market as a "temporary blip. As the biggest player in the watch segment, we have been affected, but we expect the market to revive in the current year."

The worry for Titan-and for the entire watch industry-is that the slowdown in this sector may have little to do with the economic downturn and more to do with the industry reaching a level of saturation. In that case Titan will have to be content with 2-3 per cent growth from watches and will have to rely on other businesses to boost the topline. That indeed appears to be the hedge strategy: other than jewellery and silverware, Titan has also forayed into the youth segment with sunglasses and leather accessories (wallets and belts) under the Fastrack brandname. There are also plans to extend the Titan brand to pens and ties.

"Titan will continue to grow profitably. If somebody wants to lose money they're welcome to do so." Bhaskar Bhat, MD, Titan

Yet, it isn't as if Bhat believes that the slowdown in watches is here to stay. The Titan view is that the installed base of 200 million watches for a country with a population of 1 billion suggests that the market isn't yet saturated. China for instance has a similar population that buys 120 million watches a year. In India, annual sales of watches are around 25 million.

If market saturation isn't worrying Titan, what certainly should be a matter of concern is the competition, which is cut-throat across all segments. At the lower end, where margins are wafer-thin, Titan has to contend with the unbranded players. And then there are also other brands, like Maxima, who are giving Titan's mass-market Sonata range a run for its money. For Titan this is the crucial segment: of the 6.68 million watches it sold last year, roughly 3 million were Sonatas, and Bhat claims that they're selling well in rural markets.

At the top end, Titan is facing the music from a number of foreign players-Corum, Longines, Tissot, Swatch, Rado, Ebel, Patek Philippe, Omega, Tag Heuer, Edox, Candino, Christian Dior, Espirit, Raymond Weil... it's a long list. And, although the premium segment is small, there's plenty of potential for growth. "It's a growing market, and the Indian consumer is well aware of the numerous brands available," avers Olivier Bernheim, President & Chief Executive Officer, Raymond Weil.

The foreign brands won't give Titan team sleepless nights-as long as they don't invade the mid-segment, which is clearly Titan turf. The company has a 75 per cent share in this segment (watches priced between Rs 1,000 and Rs 4,000).

The threat for Titan here is from Timex, which has been growing rapidly and gaining share, with its recently launched Matrix range. Kapil Kapoor, Managing Director, Timex, is targeting a marketshare of around 35 per cent in three years. No prizes for guessing who will suffer if Timex is able to hit that mark. "The fact that we are growing in a near-stagnant market is a clear indication that we are grabbing marketshare from other players. In the last year, we have increased our share from 18 per cent to 22 per cent. At the retail level, we are growing at 40 per cent a year."

It appears inevitable that Titan will lose some share to Timex in the short to medium term. And Bhat is clear that he is not going to chase marketshare at the cost of profits. "Titan will continue to grow profitably," he says. "If somebody (guess who!) wants to lose money they're welcome to do so."

But then profitability in a market that's refusing to grow isn't easy. Titan is relying on a bit of innovation to see through the rough times. It recently launched Titan 'Edge' which, at 3.5 mm thickness (slightly thicker than your credit card), is being touted as the world's slimmest watch.

Bhat says the company spent Rs 3 crore in research and development costs on the watch, and expects to sell Rs 15 crore worth of the range (the watch retails at Rs 5,500 a piece). At the same time, he's hoping the "technology edge" of Titan that's been demonstrated via this model will provide momentum to other products in the company's portfolio.

The Other Headaches

Other than the headaches on the market front, Titan has some internal sprucing up to do if it has to get its act together. One major worry on the balance sheet is the high debt:equity ratio, of 2. Titan had total borrowings to the extent of Rs 422 crore at the end of March 2001. The interest outgo because of these borrowings was a high Rs 47.84 crore. Bhat admits this is a "cause for worry'' and claims the company is considering ''a fresh capital infusion of around Rs 70 crore by the existing shareholders".

Meantime, all the routine steps to improve operational efficiencies are being taken: McKinsey has been roped in for an organisational restructuring, and Quadra Advisory-the firm founded by marketing guru Shunu Sen-will be developing the brand strategy for the watches division.

The consultants, of course, can only do so much. It will be up to Titan to ensure that: one, the jewellery business continues to grow at a rapid clip and thereby boost the top line; and, two, even as Tanishq plays its hand in propping up sales, Titan is able to squeeze growth out of the profitable watches business.