Tuesday, May 19, 2015

Gitanjali Gems Ltd: Forward March has Started

Recently there were media reports that working capital loans of Rs.4,300 crore given to Gitanjali Gems Ltd (Rs.42.25) have been restructured under the joint lenders’ forum (JLF)  mechanism. 

The company announced on April 21 that it is consolidating the business at group level to improve cash flows and reduce costs in various activities such as sourcing, manufacturing, distribution, exporting and retailing. It proposed the merger of three of its subsidiaries Asmi Jewellery India and Spectrum Jewellery with Nakshatra Brands and also the merger of Gitanjali Jewellery Retail and Gitanjali Lifestyle with GILI India.

Gitanjali has also sought rescheduling its repayment of ECB loans with IDBI, with the RBI providing in-principle approval for the rescheduling.

The gems and jewellery sector has been under stress owing to a rise in customs duty, RBI-imposed restrictions on gold imports and a volatile rupee. “Gitanjali being one of the largest players in the Indian jewellery space was also impacted by these regulations,” Gitanjali’s CMD Mehul Choksi said in the company’s FY14 annual report. Further, the company had to significantly rationalise its operational costs primarily the manpower and administration costs.

However, current NDA government has taken a liberal approach towards gold. Among others, the government is taking steps to change the way Indians are holding gold. The 80:20 scheme — under which 20% of imported gold has to be exported back — has already been scrapped. 

Now the finance ministry has proposed two schemes, which are aimed at the way Indians are holding gold and mobilise idle gold lying with the Indian households and temples. The Gold Monetisation Scheme and gold sovereign bonds were proposed in the Budget and are being finalised.

Bonds are for giving gold returns without buying physical gold, while gold monetisation is to mobilise gold for productive purpose and also give good returns to those who holds it. Both will also contain interest rates over and above gold price returns. According to estimates, 22,000 tonnes of gold or $1 trillion worth of gold, which is half the size of the Indian economy, is lying idle with households. This could reduce the need to import gold without imposing any controls on gold import. However, the government has retained 10% duty on import of the yellow metal and collected $3.4 billion as import duty in 2014-15. This is leading to smuggling and a flourishing unaccounted market.

Jewellery exports from India are likely to hit a four-year high, crossing $40 billion, in the current financial year on robust American demand. Also expected is a rise in demand for gold ornaments in West Asia and Turkey. The Gems and Jewellery Export Promotion Council (GJEPC) has fixed a target of $43 billion this year.

Diamond jewellery demand is robust across all destinations, led by the US. Gold jewellery demand has also seen phenomenal growth in 2014-15. The trend looks likely to continue, on rising order flows. Thus, according to experts, India can easily surpass $40 billion this year.

Gems and jewellery are 13% of Indian merchandise export. India processes 11 of every 13 diamonds in the world. America constitutes around 42% of world jewellery consumption and around 40 % of India's overall gem and jewellery export goes there. 

Indian jewellers have taken several initiatives to promote gold and diamond ornaments. Apart from frequent bilateral meets, they've also successfully made a dent in the Latin American market, set to fetch good volume this year.

The latest book value of the shares of the company is Rs.287.39. The stock has started to move up after a long consolidation phase. The next target seems to be Rs.47.

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