Analyst corner: Uncertainty over pick-up in demand for jewellery demand - JP Morgan
We are seeing incremental incentives from jewellers to push diamond sales in Q4. Recent recommendations by RBI on gold loan lease rates (if implemented) may pose downside risks to earnings/working capital assumptions and may remain a stock overhang. We also note that gold price inflation y-o-y continues to moderate limiting support to topline growth in coming quarters.
Jewellers witnessed good rebound in sales growth in the festive-cum-wedding seasons over Oct-Nov’12. However, some moderation was seen in January. TBZ noted that they had to offer tactical incentives to drive sales. Sustenance of demand in Q4 would be key to gauge underlying confidence in consumer sentiment.
Share of studded jewellery was lower for most on account of weak discretionary demand for diamond jewelry particularly from entry level purchasers as noted by TBZ. We note companies like Titan are running special promotions on diamond jewellery in the current quarter to push up sales.
Final recommendations by RBI related to gold loan lease rates (making them at par with base rates) if implemented could pose downside risks to earnings/working capital for jewellery retailers and may remain a stock overhang.
If this scenario comes true, Titan would likely consider managing a
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