In an interview CNBC-TV18, Nilesh Parikh, chairman of Shree Ganesh Jewellery said he expects to see margin recovery in the next quarter on the back of stable demand, stability in gold prices and dollar strengthening.
"Now gold prices have stabilised between USD 1,300-1,400 per ounce, which is acceptable in international market. That will help us to retain our margins; rather we will have better margins in the Q1 this year," he says.
Domestically, the company plans to be more in retail space than wholesale space because retail space will have better profit margins, which in turn will help their bottomline, he specified.
Parikh said stability in gold prices has led to consistency in demand growth both domestically and internationally.
Below is the edited transcript of his interview on CNBC-TV18
Q: Your topline growth was solid but none of that got reflected into your margin performance. Can you take us through this quarter and on the basis of this quarter what your expectation is in terms of topline and margin performance going ahead?
A: We have been able to maintain constant margins. There was lot of market volatility, gold prices were swinging and it was difficult to maintain margins. As the market was shifting and fashion too was shifting we changed our product mix. We introduced new varieties, new jewellery in domestic as well exports markets.
When a new product is introduce, we have to spend more on marketing and on development of that product and that do take a toll on the margins.
However, if you see the demand of jewellery, the topline speaks for itself and the price of gold has also helped demand. So, from next quarter we will comeback to the normal margins that we have been enjoying because it takes some time to evaluate what runs and what does not run and what is acceptability in international market.
For exporters, the rupee devaluation is a positive sign and so we will tend to have better returns on dollar exports. So, this current quarter we expect to do much better,
Q: You did say that margins are definitely under pressure but do you see any recovery going forward or do you expect total expenditure to be at these elevated levels of an increase of around 80-85 percent on year-on-year basis?
A: The expenses are going up because of insurance for exports. The company planned to take insurance but due to volatility in gold, we are spending more on our export insurance. Also the interest rate, which comes under expenses, has gone up by approximately 30 percent this year compared to last year. So, our expenses have gone up and hence the margins have come under pressure.
However, as the markets are improving and dollar is getting strong, we will retain our margins, in fact we see that Q1 will have a better result because now the gold prices also stabilised between USD 1,300-1,400 per ounce, which is acceptable in international market and that will help us to retain our margins, rather we will have better margins in the Q1 this year.
Q: You were telling us about the demand improvement that you are seeing. In FY14, what kind of topline growth do you think you can do and if you can break it up between domestic and export?
A: Company has a big plan for domestic market, which will take almost a year. In domestic space we are planning to have more of retail space rather than wholesale space. So, we are going from wholesalers to consumer base and hence on retail side we will be having larger profit margins which will help our bottomline.
If you see our track record, our growth is between 18-20 percent YoY. So, in Q1 also one might see the same growth. Our concern is basically the bottomline, which most probably will be mitigated because the prices of gold have stabilised and demand is consistent after the gold price have come down domestically as well as internationally. So, the growth is there.
Q: Could you throw some light on the demand sensitivity that we have seen with consumers on falling gold prices. Do you see a surge in demand, which would possibly be crucial from a trade deficit perspective or do you see some amount of stabilisation despite little bit of spurt that we saw in April?
A: You will see a very stable demand now because there were two factors. First, the duty increment on domestic consumption because of current account deficit (CAD). Second, people felt that the import of gold to India would be stopped which is not the case and the upcoming season is not a marriage season.
So, this first quarter, demand will be stable, the prices of gold maybe very stable. I do not think there will be erratic imports by the banks because Reserve Bank of India (RBI) has come strongly on the banks to import gold domestically on consignment basis. Therefore, everything is going to be better.
Manufacturing space will increase pan India. The basic idea is that the manufacturing should increase and that is going to happen. Our Domjur factory has also kicked off, for domestic as well as international markets and things are going to be much better and more stable.