Stable gold prices to boost demand volume: Gitanjali Gems

Despite falling demand, Gitanjali Gems posted strong results for the first quarter of FY13 . In an interview to CNBC-TV18, President Abhishek Gupta says that this was due to the expansion plans of the company.

“For Gitanjali, the thing we did is right in last two quarters is the expansion of stores in tier II and tier III towns. We adopted the model of expanding through franchises, we introduced new categories in gold and semi precious stones and we expanded our international business in Japan, China and Far East. So the combination of all this gave us this kind of growth,” he explained.

However, volume growth was lower than expected due to the high prices. But, Gupta says demand will pick up once gold price stable. “We are expecting gold prices to stabilise at Rs 30,000-31,000 per kg and this will increase the demand in volumes in next six month,” he said.

Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra.

Q: We get the sense from the World Gold Council and from rivals like Titan that demand has actually lowered. Did you see any tapering of demand?

A: For us the demand side of the industry is categorized into four parts. First is the commodity side, which is more of the investment buyers, second is the wholesalers, third is the mom and pop stores and fourth is branded jewllers like us.

For Gitanjali, the thing we did is right in last two quarters is the expansion of stores in tier II and tier III towns. We adopted the model of expanding through franchises, we introduced new categories in gold and semi precious stones and we expanded our international business in Japan, China and Far East. So the combination of all this gave us this kind of growth.

Our like to like stores, which are two or three years old, have a stable growth in the likes of the other parts of the industry, but the incremental demand came from the new stores that we added in this last two quarters.

Q: What is your volume growth in the quarter gone by and what do you expect for FY13?

A: The total jewellery sales in Q1 were up by 36% and the volume in this was up roughly about 22%. As I said, the volume was due to incremental stores that we opened in last six months.

Q: Your margins have been under some bit of pressure. From where did this pressure come from, largely interest cost?

A: It was a combination of interest cost and commodity prices. Being a manufacturing company, we have to continue the sales part of the business. Margins are under pressure for majority of the players, including us. The products that we manufactured in this last quarter were more of gold sales.

Q: Gold is sitting at over Rs 30,000 per kg at this point in time. How will this impact demand in the upcoming festival season, and are you looking at diversifying in order to substitute sales?

A: For us the demand is picking up now. The festivals coming up are Diwali, Christmas and Valentine in India as well as in international markets. So the consumers who deferred their buying decisions in last six months will continue buying now. We are expecting gold prices to stabilise at Rs 30,000-31,000 per kg and this will increase the demand in volumes in next six month.