Titan, Kalyan Jewellers brace for Rs 550-cr, Rs 120-cr write-offs as Budget cuts import levy on gold

In the Budget 2024, the Finance Minister Nirmala Sitharaman announced cutom duty cut on gold to 6 percent from 15 percent.

Jewellery retailers Titan and Kalyan apprehend a loss of Rs 550 crore and Rs 120 crore in the next two quarters because of the 9 percent slash in import duty on gold announced in the Budget 2024.

These losses will be incurred because of inventory held by the jewellers bought at prices higher than the revised levels. However, as per sector experts, they are expected to recover the loss in the long term aided by increased demand in response to lower prices.

“I think all of us agree on the long-term benefit of this move, and the maximum loss we think over the next six months would flow through our P&L, could be in the range of Rs 500 crore to Rs 550 crore. But many things can work in different directions which we don't know yet. And that is why, very accurately estimating this is a difficult task. This is the maximum number, and it can be slightly lower, depending on gold prices, what kind of discounts are happening in the market, etc,” Ashok Sonthalia, CFO of Titan Company, said in an investor call on August 2.

Kalyan Jewellers Executive Director Ramesh Kalyanaraman told Moneycontrol: “In the short term, there can be a Rs 120-crore one-time write-off for Kalyan and that will be partially in Q2 and partially in Q3. Short-term positive impact is the demand momentum, high traction at the store level.”

Kalyanaraman added that the unorganised players will see a bigger impact of the duty cuts as they do not hedge their inventory.

“Now the unorganised players cannot increase their volume, as it's a cash flow hit for them. They will still maintain their volume, but organised players have the opportunity to increase the volume at the store which would mean more SKUs, more inventory for a consumer, more revenue,” he said.

Expansion outlook

Titan aims to target around 40 to 50 new stores in Tanishq, around 70 to 80 stores in Mia and a substantial similar number in CaratLane.

The company reported a 1 percent decline in its net profit YoY for Q1 FY25, while the jewellery segment’s total standalone income for the quarter grew 9 percent to Rs 9,879 crore. EBIT at Rs 1,103 crore came at a margin of 11.2 percent for the quarter. The international jewellery business recorded a growth of 92 percent YoY to Rs 350 crore.

The first six weeks of the quarter that included Akshaya Tritiya saw a 20 percent YoY retail growth.

In India, 11 stores (net) were added in Tanishq, 19 in Mia and three in Zoya. Zoya opened its first store in Chennai and Pune. CaratLane added three stores (net) in the quarter taking the total store count to 275 stores spread across 112 cities around India.

Kalyan Jewellers reported 24 percent YoY increase in net profit for the June quarter at Rs 177 crore on August 1. In a stock exchange filing, the company said the revenue went up 26.5 percent to Rs 5,535.5 crore YoY from Rs 4,375.7 crore in the same period last year. Revenue from India grew 29 percent and the Middle East revenue grew 16 percent YoY.

The EBITDA of the jewellery retailer was up 16.5 percent (YoY) at Rs 376.1 crore versus Rs 322.8 crore in Q1FY24. The margin witnessed a slight dip at 6.8 percent YoY basis.

“We are planning to open 80 showrooms this financial year, we opened 18 for Kalyan, and we will be opening 35 more before Diwali. For Candere, we already have opened 11 showrooms in Q1 and, in Q2, we will be opening 20 more pre-Diwali. We will be opening our first international store outside Middle East in New Jersey, US, before Diwali,” said Kalyanaraman.

Getting out of debt: Kalyan Jewellers

The company is planning to get out of the non-gold metal debt which stands at Rs 1,000 crore, in the next two to two and a half years. In the last fiscal, the company reduced this debt by Rs 300 crore and expects a similar debt reduction in FY25.

The company is focusing on asset-light growth through franchisee models, debt reduction, and non-core asset monetisation.

“The next two to three years will be asset-led expansion and debt reduction. This debt reduction will release certain non-core assets mortgaged in banks. Those assets will be further liquidated to bring back (capital) into the system,” said Kalyanaraman.

Therefore, he expects return on capital employed (ROCE) expansion to be substantially high for the next 2-3 years. This will be led by a franchisee model, as part of their asset-light strategy, where ROCE is extremely high -- in the range of 60 percent to 70 percent for all new stores.