Annual Report-FY 2011-12 - Timex Group India

investments made by several Indian and global brands (including the launch of several new brands) which are increasingtheir focus on the Indian market. It is estimated that the watch penetration in India is 27 per cent only with just 3.5 per cent ofthe Indian population owning multiple watches.The economy and mass segments form close to 80 per cent of the market by volume and contribute only 40 per cent of themarket by value. Whereas affordable luxury and luxury segments are estimated to contribute around 20 per cent of the marketby value and have a small volume of around one lakh pieces. Around 60 per cent of the market by value is controlled byorganized players. The gender segmentation shows a bent towards men with 60 per cent of the market catering to them.The growth factors are changing consumer dynamics, increase in disposable income, growth of organized retail and entry ofinternational brands. The emerging trends show youth and women consumers as the primary growth segments in the watchindustry. Additionally on account of increasing maturity of the Indian consumer and on account of the concerted effort of theorganized sector branded Time wear has been growing rapidly at the expense of the unorganized sector.Currently, the major challenges faced by the industry are stringent government regulations, slower than anticipated changein the consumer behavior in terms of channels where they shop being quite undercapitalized, and a large unorganized market.OUTLOOK/ OPPORTUNITIES AND CHALLENGESThe economic growth of India and the changing life style of the Indian consumers who are aspiring to a more internationalway of life on account of the growing awareness of the global fashion trends bode well for the growth of the watch industry.Your company is well positioned to take advantage of this.The factors like growing economy in the long term, increasing consumerism, favorable demographics, 300 million strongmiddle class and more than a million high net worth individuals, hold a lot of promise for the Time wear industry in near future.The new rule which allows 100% foreign direct investment in single brand retail trading will further open up the Indian marketfor foreign investments and accelerate retail market growth.The new age watch buyer is a young, aspiring individual with a high disposable income. The consumer does not see thewatch merely as an instrument for keeping time; a watch is now considered a fashion accessory and the brand name a fashion& style statement, and a reflection of his or her personality. This has created a trend of multiple watch ownership “A differentwatch for different occasions.” This encouraging development for the industry could propel industry growth significantly infuture years and Timex Group India Limited (TGIL) with its wide array of brands and styles, ranging from Fashion to Classicsand Sports to Jewellery can take full advantage of this.The Company has a unique advantage of having several international brands and domestic manufacturing capabilities. Thisallows international products to be sold in India at prices which offer tremendous “Value for Money” to the consumer. Thecompany also boasts of a portfolio of seven brands and the presence of its own franchised retail chain, “The Time Factory”,comprising of 100 stores. This allows TGIL to participate at all ends of the value chain which in turn enhances margins. Bydoing so, the company is also better positioned to control its own destiny more effectively and this provides a sustainablegrowth platform for the business in the years ahead.In addition, your Company continues to leverage the skills reposed at the Timex Group Global Design Centre located in Milanand also Global Supply Chain organization to support the business in India which has resulted in improved technology andstyling of the products.TGIL has been recognized by the industry for its commitment to the Indian Time wear Industry. It has been selected twice ina row in the last 2 years in the Brand Equity’s most trusted brands list in the consumer durables segment.RISKS/ THREATSThe slowing down of the economy, high inflation, high borrowing costs and depreciation of Indian rupee and their resultantimpact on the consumer sentiments are major risk for the future consumer demand for the products across all categories.Indian Time wear industry is not devoid of bottlenecks and there are key challenges owing to the government policies andregulations. Economic growth slowdown coupled with rising inflation continues to be great challenge. High duties andcomplex & varied taxation structure are proving to be key impediments to its growth. The latest revision of Excise Duty from10% to 12% is a new challenge. Taxes such as VAT, Octroi fall under the jurisdiction of the state government and many of thesestates have imposed a different rate of tax. The current import duty structure is also impacting the operations and profitabilityof both Indian and international watch companies, posing as hindrances to the growth of the Indian Time wear industry.The increase in the commodities prices, increased cost of sourcing from China and limited vendor capacity for the criticalwatch parts in India are resulting in the increase in the sourcing costs of key components. The rising input costs shall havean adverse impact on the operating margins, unless mitigated through various measures to cut costs (without compromisingquality). Several initiatives are being developed to address this risk.9