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The company's move to stop the earlier scheme was necessitated by the new Companies Act, which termed these as public-deposit schemes. The Act limits the returns companies offer deposit holders to 12% and caps the total amount of deposits to 25% of their net worth.
Titan will be seeking its shareholders nod for this and the total sum of the deposits will not exceed 25% of its networth which is around Rs 2,500 crore. Titan, prior to pulling the plug on the two gold deposit schemes has deposits worth around 45% of its networth. As a result of stopping the two schemes, there are estimates that Titan will witness sales of jewellery as much as Rs 1,000 crore by end of August.
Tanishq has been operating two gold deposit schemes-- Golden Harvest and Swarna Nidhi - for many years. The Golden Harvest scheme was the most sought after, as through this, a customer had to pay equated sums for 11 months, after which the company contributed a month's worth of deposit; the customer could buy gold worth 12 months of deposits.
HDFC Securities in a recent research note on Titan said the company has the option of relaunching the scheme by curbing the tenure to 180 days and tweak the monthly payments under the scheme or offer Deposits (greater than six months) that are compliant with Deposit rules. "We have already factored in a reduction of approximately Rs 700 crore in FY15E in Titan's customer advances to around Rs 600 crore that will negate working capital benefits of Rs 500-600 crore from the resumption of gold-on-lease," HDFC Securities analysts wrote.
The stock gained a little more than half a per cent of NSE to close at Rs 344.35 per share on Tuesday.
