Gold is in a bear market now, with prices falling about 22 percent from their recent peak. But there is no fear of the sector incurring losses, because companies don’t keep gold stocks in their books, says Nilesh Parikh, chairman, Shree Ganesh Jewellery.
Companies will not have losses if they don’t hold gold stocks
Shree Ganesh Jewellery
Gold is in a bear market now, with prices falling about 22 percent from their recent peak. But there is no fear of the sector incurring losses, because companies don’t keep gold stocks on their books, says Nilesh Parikh, chairman, Shree Ganesh Jewellery .
Speaking to CNBC-TV-18, he says that gold jewellery, which is sold through large corporates and chains of stores, is purchased and sold on daily basis. As most companies follow this dictum in India, and gold is completely hedged, they will not have losses as they don’t hold gold stocks.
He feels that the fact that gold prices have fallen is good, as the investment scene will come down and jewellery sales will increase.
Here is the edited transcript of the interview with CNBC-TV18
Q: First let us access the on ground situation, because quite clearly, the Indian situation is slightly different compared to what has been happening globally. We have the exchange rate and also Indian demand itself how has the trend been over the last couple of days. Would you say if this continues, you would make some losses especially given that some of the inventory maybe at higher levels?
A: If you are talking about our company, most of the time we have gold which is totally hedged. There is no question of losses because we do not have that model where we keep gold stocks on our books. Most of the companies now follow that dictum in India. The large corporate also follow this dictum where gold is completely hedged. It is on daily basis they purchase and sell to the customers.
Basically what I am trying to explain here is gold jewellery, which is sold through large corporates and chains of stores, most of which is purchased and sold on daily basis. Those companies will not have losses if they don’t hold gold stocks.
Q: Usually how are your sales affected by a mood like this when price falls like 10 percent under your nose as it were? Do you see purchases increasing initially or do you see them peaking off if price were to fall for a month, two months how does purchase psyche move?
A: Gold prices have been coming down since almost last one and half, two months. We have seen that a lot of gold coin uptake is there, and jewellery sales have come down. But in India, everything is on ceremonial basis. In the sense that we have Akshaya Tritiya coming wherein people will go out and buy jewellery or gold coins.
During marriages there is sale of jewellery. We will have to check that out but yes, there is an impact. I think the investors who are there they will get out of gold basically and that will help the jewelers to sell their jewellery so that is what I am trying to tell you.
Gold prices have fallen, it is good. The jewellery sales will increase and the investment scene which is going on since last couple of years will come down. What we are looking at is that the manufacturing sector will improve that is what I am looking at.
Q: You are saying that you don’t take any gold risk and technically it is on a daily basis. So, are you saying that in the sense market has got it wrong by punishing your stock or for that matter any jewellery company stocks. You might be doing better business than what you were doing 2-3 weeks back if that has lead to better demand?
A: In India, we have approximately 50 to 54 stores working. As I explained to you, jewellery buying only happens on a seasonal basis, so we are going to do alright because our stocks and the sales both are in two different directions. If one sees the stocks, it was ranging from Rs 100, Rs 210 in last couple of weeks.
Yesterday it was Rs 100-Rs 101 and today it is Rs 98 so it is not a big hit. There is panic in the market because some international traders are going to sell gold there. Like the Cyprus news is there but they have not yet sold anything, so there is a panic that gold prices will come down. We will have to wait and watch.
Q: A question more in terms of the historical experience of jewellery companies. Not all of us were in the market throughout in 1990s. The only last phase where gold fell every year from 1991 to 2001 - that decade were you in the market? Did you get a sense that gold sales do get affected by repeated, constant fall in prices?
A: Yes. Last year, we imported USD 60 billion worth of gold.
Q: Fewer gold coins will be bought if that is what you mean?
A: I say yes, fewer gold coins will be bought. The investors will get out and the real business will happen now. It is good for the people who are buying jewellery. I think it will be perfect because they will not get it at inflated prices. You know that imports have also declined.
Q: Q3 itself year on year your sales were flat. You did Rs 2858 crore. Now, do you think in the coming quarters you will be able to improve on your performance or will it fall a bit because of the fall in gold prices?
A: When you talk about Rs 2858 crore it is related to the gold price but if one talks about the quantity, yes, quantity wise we will improve because we are into manufacturing. It is just a pass through, so quantity wise it will improve but if one talks about the rupee value , it may go anyway.
Q: So, what you are saying is that because of this unexpected 10 percent fall in a matter of six trading days, you are not going to see any impact at all on this profit and loss (P/L) this quarter?
A: No, not at all because it is just a pass through for us. Gold is just a raw material which is just a pass through where we don’t take calls.
Q: Last year, you did an earnings per share (EPS) of Rs 48. This year, if I am not wrong, in nine months you did somewhere around Rs 35 or so what is your full year estimate?
A: What we are trying to tell you that, EPS and other things are again related to our profits and this year also we are seeing the same profit margins. We are not having any change, and in fact our sales have grown over the last year, not only in value term but also in tonnage. What I am trying to tell you is that because we have put up a large manufacturing facility which is in action now. I think we will do fairly well if the prices are reasonable in gold.
Shree Ganesh stock price
On December 19, 2014, at 12:06 hrs Shree Ganesh Jewellery House (I) was quoting at Rs 25.70, up Rs 0.15, or 0.59 percent. The 52-week high of the share was Rs 44.55 and the 52-week low was Rs 20.50.
The company's trailing 12-month (TTM) EPS was at Rs 20.12 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 1.28. The latest book value of the company is Rs 135.19 per share. At current value, the price-to-book value of the company is 0.19.
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