Bhaskar Bhat believes that despite all the brouhaha over the recent curbs on gold imports, consumer demand for jewellery will remain strong.
“Consumers are not impacted by all these regulatory issues. There is a fluctuation in price so consumers will postpone their purchases,” says the Managing Director of Titan Co Ltd, which makes and sells the Tanishq brand of jewellery.
Nor will Tanishq look at tinkering with its offerings, he adds.
“What you do in one year should not impair your ability to invest in the long term. For example, we can have a knee-jerk reaction to the Government’s regulation, and say, we will offer jewellery at 14 carat as the price of gold has gone up. Doing that is strategically wrong because consumers still want 22 carat gold. I can’t go and tell them that there is a CAD (current account deficit) problem, so you take 14 carat gold,” he explains in an interview.
High gold imports of 845 tonnes was one of the main reasons that pushed the CAD, the difference between the inflow and outflow of foreign exchange, to a record high of 4.8 per cent of GDP, or $88.2 billion, last fiscal, after which the Government took several steps to curb gold imports.
The Government’s ban on leasing of gold from banks will affect the company, Bhat says. “There was some impact in the last quarter, but we haven't started borrowing yet. It will start now because of the cash buying of gold. We have a strong balance sheet, so we don't have any problem in borrowing. But the interest costs will go up and profitability will come down.”
Many gold jewellers such as Titan operated under the gold-on-lease scheme. This was essentially a credit-based model in which jewellers paid for the gold they sourced on the basis of rates at which they sold the metal. The Reserve Bank of India has put paid to these plans by mandating that gold imports need to be paid upfront.
However, the company says it won’t let its consumers feel the pinch “The point I am making is that you cannot change your strategy because of something that you think is a temporary change in Government regulation. The 100 per cent curb on gold imports is temporary. It has not impacted the front-end business for us, it’s just that it has made buying difficult. Margins are still healthy,” says Bhat.
Titan is better-placed than most other jewellers. Its size (largest organised player) and financial muscle (healthy cash balance and zero long-term debt as on March 2013) should enable it to absorb the hit.
Titan also has a licence to import gold. However, this may not be of much use to the company as the Government has also said gold importing agencies (typically banks), or companies such as Titan, have to ensure that at least 20 per cent of the gold they import should be exported. Titan uses all the gold it buys and does not export any. vinay.kamath@thehindu.co.in