Currency curb adds to PAN blow on jewellery sector

The govt’s move to take out high value currency notes is expected to adversely affect the jewellery business as 70-80% of transactions are made using cash


Gold has been a popular mode to hoard black money apart from real estate and is a popular mode of savings, even among the poor. Photo: Priyanka Parashar/Mint
Gold has been a popular mode to hoard black money apart from real estate and is a popular mode of savings, even among the poor. Photo: Priyanka Parashar/Mint

Mumbai: Gold has been a popular mode to hoard black money apart from real estate and is a popular mode of savings, even among the poor. The government’s move to take out high value currency notes is expected to adversely affect the business of jewellery companies. Even as the exact impact cannot be quantified as of now, jewellery demand is expected to take a hit.

While PAN (permanent account number) disclosures have already curbed transactions over Rs2 lakh in cash, the latest demonetization is a further blow, according to HDFC Securities Institutional Research. Nearly 70-80% of transactions in jewellery are made using cash, according to a February 2015 FICCI report on black money.

Titan Co. Ltd’s management does not seem unduly worried. In an interview with CNBC-TV18, S. Subramaniam, chief financial officer of Titan, said this is good for organised players, while there could be short-term disruptions because of a liquidity squeeze.

But investors are not taking chances. Jewellery stocks such as Titan and PC Jeweller Ltd fell 5-9% on Wednesday. Titan’s jewellery business contributed almost three-fourths of the revenue for the September quarter. The company’s gold jewellery volume had declined 32% year-on-year last quarter. What offers some comfort here is that analysts expect the unorganised sector to take a bigger hit than the organised sector. However, the jewellery sector was already suffering from weak demand and this development is an additional negative factor for investors to contend with.

Retail stocks such as Shoppers Stop Ltd and Trent Ltd declined 2-4% on Wednesday on fears that this move can affect discretionary spending, even if temporarily. Semi-urban markets, which are more cash driven, are expected to see a major cut in spending and that in turn should affect demand. This comes at a time when companies are already struggling with muted sales growth. Shoppers Stop’s like-to-like sales volume declined 3.1% for the September quarter. Consumer durable companies such as Havells India Ltd and Bajaj Electricals Ltd are expected to see some demand postponement that would adversely impact near-term revenue performance.

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