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Titan Co Ltd, one of the strongest jewellers in the country, is facing difficult times as the company has been one of the worst-hit by the RBI's norms to ban imports of gold on lease.
The move has not only resulted in the firm's debt levels soaring, but has also made the company struggle for inventory which is becoming increasingly hard to procure. The company now has its gold requirements fulfilled only until November 2013.
In a conference call with analysts, Titan said the demand scenario for jewellery remains challenging as consumers cut back on spending.
While weak consumer sentiments continue into the third quarter, Titan added that the second half of October has shown signs of a pickup in demand. Although the share of its diamond jewellery sales increased to 37 per cent of the total sales in the segment, gold continues to pose a challenge.
Just a month after the end of the second quarter, Titan's debt level stands around Rs 950 crore, a 57 per cent increase from the Rs 606-crore levels on September 30, 2013.
Titan, which began the year at zero-debt has had to borrow to fund its gold requirement which it has been buying on lease until the provision was prohibited by the RBI. India, the world's largest consumer of the yellow metal, imports virtually all of its requirement, but imports came to a halt around July this year when the government and the RBI began a series of measures to curtail the free flow of gold into the country.
That followed in a couple of hikes on gold import duties and a clause that required importers of the bullion to cough up cash upfront. Prior to the directive, gold had been available on lease wherein there was a 180-day period to pay up for the gold used.
The move, intended at narrowing the current account deficit (CAD) to which gold imports have been the second largest contributor, served the economy well but left Indian jewellers in limbo.
Indian imports that have hovered at an average of about 60 tonnes a month crashed to 3.38 tonnes in August and have only picked up to 7.24 tonnes in September.
In addition to this, even the gold brought into the country has been spending longer periods awaiting customs clearance at airports. Titan uses a little over 20 tonnes of gold in a year.
The high cost of importing the metal into the country has also resulted in a rise in illicit gold entering the country. Some smaller, local jewellers procure this illicit material at 7-8 per cent lower rates and pass on the discount to their consumers.
However, bigger names like Titan are the only ones grappling with the situation as the crisis is with the gold that is sourced responsibly.
In fact, some jewellers, including Titan halted the sale of gold coins to support the government in its efforts.
Titan has said, it will consider resuming gold coin sales when the supply of gold improves in the country.
Titan, popular with Indians for its namesake brand of watches, derives about 80 per cent of its revenues from the sale of gold through its Tanishq retail stores.
As of now, Titan is sourcing its requirements of the yellow metal from bullion dealers, the gold deposit scheme and domestic copper firms that produce gold a by-product.
The company expects the gold-on-lease contracts to expire by the end of calendar year 2013.Titan also has a direct import licence that it can use to import all the gold it requires for its operations on an "actual use" basis.
However, the company is evaluating its export options - a mandatory requirement for using the licence. '
In September, C K Venkataraman, head of Titan's jewellery division, said the company expects to start using its licence, unused till date, before the end of the December. Payments for direct imports have to be settled in 90 days.
Titan presently has a limit of 5 tonnes of gold with the MCX, up from 4 tonnes. The company also said that it is in talks with the RBI to hedge through the futures market outside India.
