Gold hero, jewellery zero!

February 28, 2009

Commodity Online
MUMBAI: As the propensity to consume falls for gold in the back drop of rising prices, the branded jewellery makers face hard times ahead.

Titan Industries Ltd (TIL), country’s largest branded jewellery maker is facing a tough time as the demand for branded jewellery has almost vanished. The Gold jewellery market in India grew at sluggish rate of 2.6% CAGR during FY 03-08 from 490 tonnes in FY03 to 588 tons in FY08.

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TIL had ventured into the branded jewellery market in 1995. It’s Tanishq and Gold Plus outlets reported a robust volume CAGR of 28% in FY 03-08, clocking the market share gains of 190 bps in FY 03-08 from 1% in FY03 to 2.9% in FY 08.


But in the recent times in the back drop of the international financial crisis, the gold prices have kept surging at a rapid pace. This may give a break to the TIL’s growth rate.

As mentioned by Emkay Research, with challenging times ahead due to sharp increase in gold prices, reducing the propensity to consume and sharp decline in India’s jewellery market from 630 tonnes in FY 00 to 558 tonnes in FY 08.

These factors are likely to slower the pace of market share gains in jewellery business and in turn impact the overall growth of the company.

After doubling its volume market share from 1.4% in FY 06 to 2.9% in FY 08, experts expect TIL to slower pace of market share gains. This is on account of weaker demand for jewellery due to high gold prices and reducing propensity to consume.

According to the research firm TIL’s jewellery business revenues would grow at a lower CAGR of 18.6% during FY 08 - 11E as against 56% during FY 05 - 08.

In last five years (FY03-08), the revenue from jewellery business had grown at a CAGR of 42.5% to Rs.20 bn in FY08, while net revenues are expected to grow at 18.6% CAGR in FY08 -11E period from Rs.20.2 bn in Fy08 to Rs.33.4 bn in FY11E.

As per World Gold Council data, Indian gold jewellery volume in Q4 CY 08 increased by 106.7% YoY to 102 tons. This was as fallout of a fall in the gold prices by close to 15% during Diwali festivals.

Now, since the gold prices have surged to around Rs.15,500 per 10 grams, gold jewellery demand is expected to remain low in subsequent quarter. The analysts maintain a sell on the stock. The TIL stocks closed at Rs. 752.45 down by 1.28% on the Bombay Stock Exchange (BSE).

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