RBI withdraws 20-80 rule and restrictions on import of gold in its circular dated 28th November 2014.
Gold supplies would improve further; premium on gold would be back to normal at $3-4/ounce vs earlier level of $10-15/ounce and illegal gold sourcing would also come down. Expect 30-40bps EBITDA margin improvement & 4% change in FY16-17E earnings
No change in cost of funding by restoring to gold on lease in full, but reduced debt and gold-on-lease under current liabilities would mean better balance sheet & return ratios.
Import duty cut would improve competitiveness of organised jewelers and lead market share gains. On business, expect retail expansion to drive 20% revenue growth & mix improvement to lead margin expansion. Retain BUY with price target of Rs 450/share.
"With withdrawal of 20-80 rule, we don’t see the need to keep gold import duty (increased from 2% to 10%). Any cut in import duty would improve the competitiveness of organized jewelers and foster market share gains. Expect 20% revenue growth led by retail expansion & margin expansion led by better mix. We retain BUY rating with price target of Rs 450/share", says Emkay Global Financial Services research.
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