Jewellery stocks up on strong Q2, seasonal sales

Huge gains also seen with compulsory hallmarking of 14 carat, 18 carat and 22 carat gold jewellery

Jewellery stocks surged on Monday on strong Q2 numbers by key player Titan Company, good seasonal sales for industry as a whole, and expectations of huge gains for organised sector players following the compulsory hallmarking of gold jewellery of 14 carat, 18 carat and 22 carat purity.

Food and Consumer Affairs Minister Ram Vilas Paswan, on Friday, had clarified that the government would make hallmarking of gold jewellery compulsory from January 1, 2018 to bring in uniformity in the country's jewellery sector. Currently, jewellers sell gold ornaments with different purity level to suit customers' needs and accommodate their financial capability. Thus, many jewellers sell ornaments between 9 carat and 24 carat.

Shares of major jewellery companies jumped between 5 per cent and 19 per cent on Monday.

"Titan is likely to be biggest beneficiary of shift from unorganised to organised across its key categories. We have been positively surprised by the growth rate in jewellery segment for last two quarters and the company has now been reporting an improving operating performance. We expect the margin improvement trend to continue and revise our earnings estimate to factor it," said Amit Purohit, an analyst with Emkay Global.

A Citi Research report says Titan's market share expansion has continued as retail sales / SSS (same store sales) growth were a strong 24 per cent / 18 per cent (despite July sales advanced to June before GST implementation, and some moderation in August-September post the increased KYC requirements for around five weeks).

Meanwhile, domestic jewellers' representative body, All India Gems and Jewellery Trade Federation (GJF) among others, urged the government to allow hallmarking of ornaments with gold purity of 18 carat, 19carat, 23 carat and 24 carat also to suit rural customers' need.

"We have represented to the government to allow hallmarking of jewellery with other types of purity levels as well. But, inadequate availability of hallmarking centres especially in rural India, needs to be looked at. We hope to get a positive response," said Nitin Khandelwal, chairman, GJF.

While organised sector players would benefit from early shift of selling only of hallmarking jewellery, their key question is whether the government would direct jewellers to melt ornaments that differ from the 14 carat, 18 carat and 22 carat benchmarks.

"If yes, then they would require to incur additional costs. So, instead of incurring double expenses on melting of such ornaments, would jewellers offer discount on gold prices to dispose of their old inventory ahead of the deadline. Such issues need to be resolved," said Surendra Mehta, National Secretary, India Bullion and Jewellers Association (IBJA).

Jewellers, meanwhile, have found huge consumer footfalls this festive and wedding season, which should result in good profit margins, analysts said.