Jewellers in a fix over gold imports

The July-September period has not been an easy quarter for many publicly listed jewellers in India after the Reserve Bank of India (RBI) cracked the whip on burgeoning gold imports and sliding exports. According to industry sources, large jewellers are facing a severe inventory crunch and are left with stocks that would last only till the year-end. On the other side, jewellers’ debt is rising because now they have to pay the cost of gold upfront. Earlier, gold was available on lease.
“There is a severe inventory crunch, no doubt. Some jewellers work with a large inventory bank but others have been caught off-guard by RBI’s norms. They are facing more problems,” said an executive with a top jewellery firm.
Titan Co Ltd recently said it has only procured for gold requirement until November. Another jeweller, which did not wish to be named, said it had procured its requirement only until December. Almost all jewellers, including Tribhovandas Bhimji Zaveri Ltd, Gitanjali Gems Ltd and PC Jewellers Ltd, rely on imports for the jewellery they sell in the country and export to international markets. Titan has the licence to directly import up to 10 tons, but that is not the case with most others.
According to RBI’s norms, 80 per cent of the import has to be for domestic use, while 20 per cent is to be used for exports.
“The industry is facing several issues in the domestic market and 80:20 norm of the RBI makes it very difficult for domestic players to correlate with the international market, in addition to satisfying Indian demand, which is very high.. imports have comes down drastically,” said Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation (GJF).
From June to October, total gold import was 125 tons, compared with 304 tons in April and May. GJF will write to the finance minister, urging a reduction in import duties, which is currently at 10 per cent, as it causes the grey market to ‘flourish’. It will also urge the minister to lift the restrictions on gold loans. According to experts, RBI will relax its norms within the next six months after the current account deficit is contained.
Rising debt
Not only has the procurement of gold requirement led to a tight situation, but it has also driven companies into major debt, especially after RBI said importers should make an upfront payment in cash for their imports. For instance, Titan, which started the year with zero debt, has ` 950 crore debt as of end-October. The company uses a little over 20 tons of gold in a year.
PC Jewellers’ balance sheet showed a 100 per cent increase in short-term borrowings to ` 438 crore at in September from ` 230 crore in March. Mumbai-based Tara Jewellers has seen a fall in net profit – from ` 24.4 crore in the September quarter last year to ` 22.7 crore this time. That the company has had to buy gold with upfront cash payment has increased the finance cost, leading to a fall in profit.
Tara Jewellers’ chairman and managing director Rajeev Sheth said: “In view of the stringent gold supply policy, the company is redirecting its approach for the domestic market.” The firm owns 50 stores; it is reviewing the policy of owning its retail stores.
The high cost of importing the yellow metal has also resulted in a rise in illicit gold entering the country. Smaller, local jewellers procure the illicit material at seven-eight per cent lower rates and pass on the discount to their consumers. Analysts say bigger jewellers who buy some of their jewellery from third-party manufacturers may be actually selling some of this gold at their stores as they have no control over the gold procured by these third parties. According to GJF estimates, the purchase of the gold coins and bars dropped 80 per cent in the Diwali season, while that of jewellery fell 25-30 per cent, against the backdrop of lower prices by smaller jewellers and a general slowdown in discretionary spending.
Source:Bullion Bulletin

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