Titan mulls using direct import licence for gold

Says regulatory norms to slow sales growth to much below 50%

A crackdown on the import of gold has left jewellers struggling before the coming festive season and the wedding season in December when demand spikes. Titan has said it would use its direct import licence to procure the yellow metal.

Titan has not used the licence till date, it bought gold from local agencies and banks that allowed a better working-capital cycle with a credit period of 180 days. Payments for direct imports have to be settled in 90 days.  

“We will use our direct import license that is on an ‘actual use’ basis. We’re on that, soon something will happen, definitely before (calendar year) 2014,” said C K Venkataraman, chief executive of the jewellery division, told Business Standard. “But that means we will either have to export or sell to an exporter. It’s too early to say if we will expand abroad but we have started thinking about it.”

Titan, which operates its jewellery business through Tanishq, receives about 80 per cent of its revenue from this segment. The company has never exported gold but might have to now, as the Reserve Bank of India (RBI) mandates importers using the licence earmark a fifth for exports.

“The uncertainty over return on investments and other risks remain but there is an incentive to export is there because then it will be easier to import. At the end of the day, we are a domestic company which needs gold,” Venkataraman said. He added the company was doing a cost-benefit analysis of expanding into international markets to find out whether selling to exporters would be better.

An RBI ban on leasing gold has also put pressure on the company’s balance sheet, Venkataraman said but added the company was trying to absorb the debt because of the ban. “We’ll have a net debt balance sheet now. It will be a significant increase, in terms of the quantum of money. But we hope to take it on our shoulder and do something about our overall profitability, so we can absorb this increase down the road. Its not a welcome situation but not a debilitating one either," he said.

Sales growth slowing
Titan is also facing competition from local jewellers that offer cheaper illicit gold. In addition, consumers are tightening purse strings.

“We have seen lower demand growth in this quarter, especially during the past few weeks. Without disclosing the growth in this quarter, I can say its no where close to the last quarter when we saw a growth of over 50 per cent,” Venkataraman said. Titan’s jewellery division posted a massive sale volume growth of 67 per cent in the first quarter in the financial year 2014.

Indians have a seemingly insatiable appetite for gold and its import has been largely held responsible for an increase in the country’s current account deficit, which the Union government is trying hard to control by increasing duties. This has also led to a large amount of illicit gold entering the country, especially through Nepal and Bangladesh.

“When the times are a little challenging, investing in jewellery gets encouragement but the times are really very challenged now. Our research in the low to mid segment of consumers has shown with the extent to which money is short, things like education, medicine and food become the priority,” he said.