Titan Industries - One more step by RBI to curb gold imports... - ICICIdirect

In yet another move to curb rising gold imports, the Reserve Bank of India (RBI) has now banned the import of gold with bank credit and made overseas purchase a cash & carry business. Just about a fortnight ago, the RBI had also banned consignment based import of gold (unless it is being used for re-export). It said jewellers will have to place orders with banks by paying the margin money and banks would import only after this is done. Our interactions with various domestic jewellers indicate this move is likely to have a larger bearing on the nominated agencies who import gold as they would now have to give cash payment for the gold they import. While further clarity on this is anticipated, the initial thoughts indicate that bullion banks would not be impacted.

After the hikes in import duty last year, gold imports have still continued to surge owing to the high fascination for gold in India and lower prices. On account of this, Indian gold imports for April and May have been significantly high. The country's gold imports for these months have totalled ~300 tonnes (~35% of the total imports for FY13). Hence, the RBI is now trying different measures to curb rising gold imports and improve the current account deficit situation. While the recent move will not impact the jewellers using the gold on lease model, it could lead to higher lease rates and/or increased working capital cycles. We believe any increase in costs would be passed on to consumers in the form of higher making charges etc. Hence, we do not foresee a significant impact on domestic jewellers.

With regard to our coverage company Titan Industries as well, we expect the above to hold true. While it may face near term headwinds owing to regulatory issues, the long term story and fundamentals remain intact. Hence, we remain cautiously positive and have a HOLD rating, with a target price of Rs. 299 (24.0x FY15E EPS of Rs. 12.5).

Source : Equity Bulls

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