Retail: Impact on jewelers from the new RBI circular on Gold import - Ambit

RBI's circular on gold imports released yesterday reverses the restrictions imposed in its previous circulars around use of letter of credit (for gold lease) and use of consignment imports for domestic consumption. These restrictions have been replaced by a requirement that at least 20% of gold imports have to be used by the nominated banks/agencies for the purpose of exports.

Implications for jewelers include: a) Gold-lease business model for jewelers like Titan and TBZ gets restored, thus concerns around increased cost of inventory finance and ability to fully hedge against commodity price risk will go away; b) Availability of gold, which previously was constrained by consignment import restrictions, will now be constrained by the "20% for exports" restriction for the importers; and c) Domestic consumption through imports can only be for jewelry business.

We expect the impact of this circular to be positive for firms like Titan and TBZ, given the restoration of gold lease model and requirement to import for domestic consumption only as jewelry. However, the constrained availability of gold going forward will necessitate these firms to pay a premium over spot rate for gold procurement through the nominated banks/agencies.

Source : Equity Bulls

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