Gitanjali Gems down 40% in 2 days; recent RBI norms to hurt
Gitanjali Gems hit the 20 percent lower circuit for the second straight day. The company says recent RBI and government initiatives to curb gold imports will hurt earnings.
June 26, 2013 / 08:31 IST
Moneycontrol Bureau
Jewellery retailer Gitanjali Gems hit the 20 percent lower circuit for the second straight day as the recent drop in gold prices and the recent Reserve Bank of India and government initiatives is seen hurting company's growth.Earlier this month, the government raised import duty on gold to 8 percent, in its bid to curb the high current account deficit. The Reserve Bank of India announced new guidelines, which prohibit companies from buying gold on credit. Jewellers now have to buy gold by paying cash upfront. All India Gems and Jewellery Trade Federation on Monday asked its members to stop selling gold coins and bars to curb imports. Last week, Reliance Capital had suspended gold sales across all its business.Gold business accounts for 25-30 percent of Gitanjali's revenue and these measures announced to curtail gold demand will hurt revenue, the company's president Abhishek Gupta said earlier today.He said gold companies are facing immediate working capital pressures."Our overall gold sales kitty is almost 25-30 percent of the topline and with the new guidelines from RBI, the sales will be compromised...There is no gold available for domestic consumption. There are very few banks which are selling gold and hardly any physical gold is available, a fraction of what it used to be a couple of months back," Gupta told CNBC-TV18.Gold imports in India are likely to halve to about 150 tonne in July-September quarter, from projected 350 tonne in April-June, Press Trust of India said quoting Suresh Hundia, president (emeritus), Bombay Bullion Association on Monday.The new RBI norms has increased cost of funds for jewellery firms to 13-14 percent from 5.0-5.5 percent, according to Ketan Kothari of Riddi Siddhi Bullion.Also Read: Gold demand tapering; importers may remain cautious, says RSBLGitanjali Gems has lost 40 percent in two days and closed at the 20 percent lower circuit of Rs 320.75.Among other stocks, which had also plunged 10 percent or more on Monday, PC Jeweller and Shree Ganesh Jewellery House recovered and ended up 2 percent and 1.2 percent respectively and Tribhovandas Bhimji Zaveri closed down 1.6 percent.SP Tulsian says a major reason for Gitanjali to hit the lower circuit and not the others is due to margin call pressure and not just business risk."If you go by the shareholding pattern and if you take the non-banking financial companies who are holding the stake in the company like Religare holding about 17-18 lakh shares, then there are other three-four companies, they are not holding those shares in their proprietary account, they are more as a pledge or the finances having given against those shares and the quantity works out to be at about maybe 80-85 lakh shares. We have see the identical number of shares now being offered for sale. This seems to be a classic case of margin pressure and I think that this pain is likely to continue," he told CNBC-TV18. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
