Jewellery stocks decline on lower availability of gold

Companies rejig strategy to keep afloat gold supply from domestic sources

Jewellery stocks have been in a free fall in the last few days due to the anticipated negative impact on their domestic business following the government’s series of measures to reduce import.

Shares of Gitanjali Gems hit the lower circuit the second day on Tuesday to close at Rs 324.30, a decline of 35.66 a cent in the last three days. Goenka Diamond & Jewels, PC Jeweller, Tribhovandas Bhimji Zaveri (TBZ), Tara Jewels and Shree Ganesh Jewellery House also recorded a drastic decline in their stocks.

The recent series of guidelines issued by the Reserve Bank of India (RBI) has had a major impact on gold imports. While supply to the domestic industry has virtually come to a halt, very few banks are delivering gold for exports. Being the key raw material for jewellery manufacturing, gold’s unavailability for domestic supply is set to reduce volume of sales and, therefore, business of the company. To avoid a free fall in their top line and bottom line, jewellers have adopted a series of innovative strategies to keep supply of gold intact.

For example, Gitanjali Gems has started focusing more on export business that comprises 50 per cent of their annual turnover. The ongoing depreciation in the rupee would also get the company more from their business abroad.

“Our presence in the US, Japan, West Asia and China is very strong. We want to increase business abroad by at least 25 per cent despite unfavourable economic environment through innovative designs and cuts depending on requirements of the specific occasions. We plan to increase our store presence in these locations, which have a positive outlook and have grown by nearly 15 per cent in the last one year,” said Mehul Choksi, chairman and managing director, Gitanjali Group.

Additionally, the company plans to raise diamond jewellery sales that have a better value addition of 25-30 per cent. Though this change in category mix will have an impact on sales, the margins are expected to not only remain intact, but also be better than estimates.

The company also plans to introduce lower category of nine or 11 carat of gold and diamond jewellery for the first time in India.

TBZ, a Mumbai-based leader in wedding jewellery, is planning to intensify scrap recovery scheme, which the company introduces once a year. According to an official, the company will have to probably come with this scheme twice a year or even more to collect more gold from domestic origin and, therefore, reduce imports.

TBZ offers 15-20 per cent discount on making charges in exchange offers. Through this, however, the company collects used jewellery to meet around 26 per cent of its annual requirement. By intensifying this scheme, the company believes it would collect more used jewellery and meet more requirement of gold.

In addition to raising import duty on gold to eight per cent from six per cent earlier, the government appealed to the common people to avoid buying the metal and also asked banks and non-banking financial services to scrap gold coin sales. The measures were meant to reduce gold import, which makes up around 75 per cent of the current account deficit, a problem worsening month on month due to lower exports and higher imports.

All these measures are set to reduce gold imports to about 150 tonnes in the July– September quarter from an estimated 350 tonnes in the April–June quarter.