PC Jeweller's CFO, Sanjeev Bhatia, said that RBI's new gold import policy to curb the falling rupee is a pragmatic move. He also said that the RBI has tried to take both into consideration - the genuine demand for the Indian public as well as its impact on the current account deficit.
As long as people keep on demanding gold jewellery there would be some source of supply either legal or illegal
India's current account deficit (CAD) stood at 4.80 percent of GDP in the previous financial year (FY13). Higher degree of gold imports is seen as one of the key factors for the worsening CAD.
Bhatia feels the central bank has tried to take the genuine demand and its impact on the current account deficit both into consideration.
"RBI has now realized that putting undue barrier on gold will not help. As long as people demand gold jewellery, there will be some source of supply, either legal or illegal," he told CNBC-TV18 in an interview.
Meanwhile he expects PC Jeweller to prosper under the new regime. He said that the move is a very good thing for a company like theirs since only 20-25 percent of their turnover comes from exports.
Below is the edited transcript of his interview with CNBC-TV18:
Q: Have you analysed what impact this curbing of gold imports might have for a jeweller like you?
A: It is very good for a jeweller like us. If I start from my company first, our company already has nearly 20-25 percent of its turnover coming from exports. What Reserve Bank of India wants to say is, okay if one wants to import gold, go ahead but one must not put undue pressure on the current account also. One has got an obligation to increase his export earnings as well.
For a company like PC Jeweller we feel it is a pretty rational, pretty well defined move and for the industry also it has put the balls back in to the industry court.
Q: By how much would it curb domestic consumption of gold because the numbers from last year seem to suggest that given what the industry exported last year if you go by that and five times that, then the industry would shrink by about 60 percent do you think that is on the cards?
A: That is a static figure. You are right. If one goes by that static figure that implies that the industry won’t be able to have more than what we say 300-400 tonne of gold for its domestic use. But in a dynamic situation RBI expects the industry to come forward and take the bull by its horn and emphasize on export also. I feel that if PC Jeweller can have 20-25 percent of its turnover from exports other big companies can surely yes. I personally feel it is a pretty pragmatic move by RBI. It has removed all the restrictions for the domestic industry but it has put an onus also yes, if one wants to import gold, go ahead but please don’t put our current account deficit in danger.
Q: What kind of impact could it have on that 80 percent domestic revenue that is generated for you though- would you expect to see a slippage on that accord?
A: No, not at all. We already have our 25 percent of turnover coming from exports and we fall into the 80:20 scheme of the RBI.
Q: What do you hear anecdotally about what is happening with importing though because even with that slippage on the June import figures there was talk of the fact that smuggling or illegal smuggling of gold had actually increased- do you think these moves may actually increase that the tendency of smuggling of gold?
A: No. I don’t think so. I think what RBI has now realized is that putting undue barrier on import of gold will not help. As long as people keep on demanding gold jewellery there would be some source of supply either legal or illegal. Now, what I feel it has taken a very pragmatic step, that okay, one can import as much as one can but one also has an obligation to export so it has tried to take both into consideration - the genuine demand for the Indian public as well as its impact on the current account deficit.
Again I would like to repeat that we feel that the company like PC Jeweller would prosper under the new regime.
Q: Just to talk about the point you are making from 70 tonne of exports last year does it look conceivable to you that the industry will suddenly start export 150 to 200 tonne this year. Do you think the global market is ready to absorb that kind of a spike in Indian exports?
A: You are very right. This puts a responsibility on the Indian industry. Let me tell you that Indian jewellery is one of the most beautiful in the world. Hand made jewellery is manufactured in India only, nowhere else in the world. If we want we can really increase our exports. Since the past few years, the domestic market was becoming very encouraging so the emphasis of the people on exports was reducing. Now after this new regulation, people would again start thinking about exports as a viable proposition. Going ahead, I see exports increasing.
PC Jeweller stock price
On March 31, 2015, PC Jeweller closed at Rs 317.75, up Rs 3.70, or 1.18 percent. The 52-week high of the share was Rs 367.25 and the 52-week low was Rs 95.45.
The company's trailing 12-month (TTM) EPS was at Rs 19.08 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 16.65. The latest book value of the company is Rs 93.93 per share. At current value, the price-to-book value of the company is 3.38.
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