Titan's gold inventory requirement for crucial Dec quarter secured

Amid the scramble for gold inventory by Indian jewellers, Titan Co Ltd has procured its inventory requirement for the current quarter. December is a crucial period for jewellers as gold consumption peaks during the wedding season following two months of festivities. The World Gold Council expects demand to pick up by 15% this quarter over the last quarter to reach 300 tonnes.

However, the company, which had planned to begin using its direct import license by the end of the year has not begun the same yet. C K Venkataraman, CEO of Titan’s jewellery division, told Business Standard that the company has procured its gold requirement for December and January through a mix of suppliers, bullion dealers, the gold deposit scheme and domestic copper firms that produce gold a by-product. While quarterly requirement varies,Titan uses a little over 20 tonnes of gold in a year.

Titan, which sells jewellery through its Tanishq line of retail stores and earns about 80% of its revenue from the jewellery division, had been facing inventory problems after the RBI and the Government cracked its whip on burgeoning gold imports as it aimed to rein in the economy’s current account deficit.

The ensuing regulatory norms had crippled gold imports and the RBI’s cash-for-gold mandate resulted in high finance costs that hit many a company’s bottomline, including Titan’s, and left them grappling for gold inventory  In its gold demand trend report for the quarter ended September, the World Gold Council said net imports fell 62% to 85 tonnes. Official estimates from the ministry of commerce peg the import quantity at 70 tonnes.

"Being the largest branded player in the space and a Tata Group firm, Titan will find it easier to procure gold inventory than its competitors. While the supply of gold will not be the major problem, the financing of the inventory has changed and borrowing costs may continue to rise," says Gautam Duggad of Motilal Oswal Securities.   

Finance costs have risen for the company that began the year at a zero-debt level, but climbed to Rs 606 crore as of September 30, 2013. It further rose by 57% in one month to Rs 950 crore in October - indicating borrowings of about Rs 300-Rs350 crore a month.

Tanishq, however has an edge over other jewellers by virtue of possessing a direct import license that it can use to import all the gold it requires for use. However, Titan has not used the license yet as the company will have to export one-fifth of its imports in order to comply with regulatory norms for the import.

C K Venkataraman, had told Business Standard in September that the company is mulling the use of the license by the end of the calendar year 2013 and was evaluating export options to take advantage of the same.