Mumbai: Established jewellery makers and companies that lend against gold will gain as demonetisation puts the informal sector at a disadvantage and drives business towards the organized sector, analysts said.
Since 8 November when Prime Minister Narendra Modi withdrew high-value currency notes, Manappuram Finance Ltd and Muthoot Finance Ltd which lend against gold as collateral have seen a dip in collections and disbursals, while demand may have dipped for jewellery companies such as Titan Co. Ltd., Tribhovandas Bhimji Zaveri Ltd and others as cash crunch crippled demand.
Manappuram and Muthoot shares which fell 18.57% and 30.45%, respectively, since 8 November, still managed to log gains of 127.97% and 57.20%, respectively, in 2016. The recent decline will be temporary, say analysts, pointing out that the ongoing shift to cashless transactions which is moving business to the organized sector from the unorganized sector, will benefit these companies.
“As per our interaction with the company (Manappuram Finance), the collections had dipped post demonetisation, and now they are back to normal. Entire goal loan portfolio is small ticket loans," said Rati Pandit, a research analyst with Quantum Securities Pvt. Ltd.
“Before demonetisation, most loan disbursals were partly in cash and partly in cheque, but it is now switching towards cheques and online. Online disbursal of loans is also rising steadily," Pandit said.
According to Pandit, December quarter loan growth at Manappuram could be flattish or could see a marginal decline from the September quarter, but asset quality may not be impacted much. This is because for interest payments due between 1 November and 31 December, lenders have an additional 60 days to treat stressed standard accounts as non-performing assets (NPAs). This leeway, apart from the regular 30-day grace period, was made available by the Reserve Bank of India (RBI) on 21 November for scheduled commercial banks, state cooperative banks, district central cooperative banks, non-banking financial companies (NBFCs) and microfinance companies.
“With the move towards cashless transactions, the unorganized sector tends to lose out, and to that extent, companies such as Manappuram stand to benefit," said Pandit.
MCX gold prices had touched a four-year low on 4 August 2015, after which it traded in a narrow range until the end of 2015, adding just 1.8%. It rallied 21.20% until demonetisation was announced on 8 November, before falling to a 10 -month low of Rs27,208 per 10 grams on 22 December. It has gained since then, and hit a one-month high on 6 January.
Shares of jewellery makers such as Titan and Tribhovandas Bhimji Zaveri are down 4.24% and 22.19%, respectively, since demonetisation.
“Jewellery stocks might reel under pressure for now, due to demand coming down post demonetisation," said Gaurav Dua, head of research at retail-focused brokerage Sharekhan.
“However, the corporatised jewellers will stand to gain, as their sales are not as cash-centric as the unorganized sector or family-owned businesses," said Dua.
That seemed to be the consensus view.
“Demonetisation had an initial impact on sales; however, there has been a gradual improvement driven by gold exchange scheme. While sales are down y-o-y (year-on-year), the decline is not as high as 30%," Amit Purohit, an analyst with Emkay Global Financial Services, said in a 12 December note on Titan, where he upgraded the stock to buy from hold.
Purohit pointed that goods and services tax and demonetisation will increase the cost of doing business for unorganized players, and Tanishq’s competitive position is expected to improve. Titan has already reduced its making charges over the past one-two years, and has successfully attracted footfall.