No concerns on HSBC stake sale; demand will rise in Q1: TBZ

Allaying fears about the company's performance post HSBC stake sale last week, Tribhovandas Bhimji Zaveri (TBZ), today said that demand for gold jewellery is expected to pick up from Apr-Jun due to wedding season and festivals.

TBZ is confident of performing well despite market slowdown, Prem Hinduja, managing director told CNBC-TV18 today.

Shares of TBZ had come under pressure last week after HSBC Global Investment sold nearly 2 percent stake in the company. The stock had tanked nearly 13 percent on March 21. Hinduja however assured that there are no operational concerns and the company’s shares have performed better than most peers post Budget.

"Post Budget this company's share has clocked a gain of 17 percent while most of the peer's shares in the same industry showed negative returns. We are well on our track for expansion plans," Hinduja said.

Also read: New KYC norm may deter gold buyers: PC Jewellers

The gold jewellery retailer's net profit in quarter ended December rose 30% sequentially to Rs 24.73 crore, while its total income was up 65 percent at Rs 577.08 crore. Its operating margin for the quarter was 7.55%.

TBZ has presence in 19 cities across seven states. The company has opened two new stores in the third quarter of this fiscal. The company now has 25 stores across the country. 

Below is an edited transcript of the interview.

Q: A word on the selling that was reported by HSBC -- all stakeholders are free to sell but did you engage in any conversation with such a large stakeholder on why they chose to sell in such a big block and whether they had specific concerns on Tribhovandas Bhimji Zaveri (TBZ)?

A: I don't think they have any specific concerns on TBZ. This being the last quarter possibly they are looking at some redemption. At the end of the day the company does not control the investor's sentiment whether they want to buy or to sell, they are free to do so. We believe that the performance of the company will drive the share price rather than vice versa.

Post budget this company's share has clocked a gain of 17 percent while most of the peer's shares in the same industry showed negative returns. We are well on our track for expansion plans. We are 25 stores as of today. We were 12 when we came with the initial public offering (IPO). We are on track as far as our expansion is concerned. The markets may go up and down, that is the function of the market but we will continue to perform. Today we are present in about 19 cities and seven states and our entire expansion plan is very much on track.

Q: I just want to clarify this, at this point is there any stake held by the promoters that is held with any other entity by a way of a margin?

A: No, certainly not. The stakes are still under lock-in because we have not even completed one year post listing.

Q: Couple of other developments have taken place which has been somewhat detrimental for the gold space- one is the tax increases that were announced by the Maharashtra government and the other is the changes in terms of gold imports – could you just quantify what the impact could be for a company like yours and whether that would impact revenues by the end of this financial year or through the course of the calendar year?

A: As far as the Maharashtra State is concerned, the value added tax (VAT) has been increased by just 0.10 percent which is very minimal. One can see that on Rs 3,000 per gram it will be just Rs 3 which the customer can easily absorb, so, that has no question of any financial impact on the performance of the company or the financials of the company.

As far as the gold imports are concerned, yes these talks have been going on for quite sometime. Various measures the government is contemplating but I am sure that they are not able to come out on any firm conclusion because basically they also realise that after a certain point of time, most of these measures can become self defeating and they can hurt both the industry and the government. We are looking at a situation where you want to make this industry more and more transparent. You want a shift from the unorganised to the organised sector so I am sure the government in all its wisdom has realized that any such measures which are taken in a hurry are bound to really fall back on them or to hit them and the industry in general.

Q: What would you be confident of setting out in terms of a volume growth target and have all the issues being sorted out in terms of the inventory changes that you took last quarter and the material increases that you will face?

A: We are already on track. We have already started the gold loan model if that you are referring to in the inventory changes- we started that post our listing, all our new show rooms are on gold leasing. We are going to follow that model all throughout and all that. All our stores are on track. As far as the demand is concerned, this quarter is muted. There are several reasons because traditionally the fourth quarter is a bad quarter for this industry, where no real major purchases take place. I am expecting the demand to pick up in the first quarter of next fiscal. We are having festivals like Gudi Padwa which will come up in April and then we have a marriage season in May for which the purchases will start in the month of April. I do expect a pick up in the demand from next fiscal onwards.