New gold norm to hit only 10% of industry: Gitanjali Gems

Abhishek Gupta, President of leading gems and jewellery company Gitanjali Gems believes that Reserve Bank of India's new gold norm will impact only 10 percent of industry participants.

Gupta explained that only 10 percent of industry participants take gold on consignment and the remaining purchase it through supplier's credit. In a bid to rein in increasing gold imports, RBI on Tuesday extended the restrictions on gold imports from banks to all other nominated agencies or star trading houses, which have been allowed by the government to import gold. Nominated banks and other agencies can now import gold only on 100 percent cash basis, unlike using all letter of credit (LC) benefits. Also read: New gold import norms to hurt smaller traders: PC Jeweller
 
Gitanjali Gems, which is also a star trading house, may get impacted slightly as the company imports gold directly. "We have to take gold on consignment on a bank guarantee, so it is that portion, which is under the impact," Gupta said. Below is the verbatim transcript of the interview Q: What is the percentage of your exports in your total sales? And will you be impacted by this rule?
A: Out of total sales we have less than 25 percent of gold sold in India and that is on the sale side and inventory carrying is one third. The gold rotates almost three times a year. So, impact is there but on portion of our overall business it is a smaller impact. Q: Can you just explain how the impact works because there were some companies which told us that we take it as suppliers’ credit from external suppliers. It is not the bank which gives us any kind of credit and therefore it is not really an import on consignment basis. Is there a distinction therefore that not all companies are impacted? Would you also have some kind of a supply suppliers’ credit arrangement and therefore even for that 25 percent you won’t be affected?
A: Part of that 25 percent is through suppliers’ credit, but we being one of the star trading house we also import gold directly. So that portion of gold we have to take on consignment on a bank guarantee, so it is that portion, which is under the impact. Q: The other issue which I wanted to discuss was that from whatever discussions that we have had with jewellery companies is that the decline in gold is being made up by increased volumes in terms of sales of gold jewellery. What has been the experience at Gitanjali Gems?
A: Similar experience. The last month was higher month for jewellery volumes especially because of the deduction in gold prices. Q: How much higher if you could quantify?
A: On a like-to-like basis we were about 18-20 higher compared to last year’s last month. Q: For the industry as a whole those guys who import gold for making jewellery for the domestic market, how do you think the bulk of them are positioned? Are they protected by the supplier giving them credit or will many of them be impacted in terms of higher working capital requirements because they have to make upfront payment to the bank?
A: Only 10 percent of industry takes gold on consignment and the remaining purchase or take supplier credit. So that 10 percent is roughly let us say 100-150 tonnes and that is only on consignment. Q: The exporters are anyway forgiven. They don’t come under this category at all. It is for the non-export business. So, what I am asking is for those who cater to the domestic market what maybe the percentage of gold that will have to be now paid for upfront?
A: At domestic market the consignment was very small anyways. Previously also it was very small. So it was around 10-15 percent of total purchases so that will also be impacted. Still 95-90 percent of the demand is met through suppliers’ credits.