Titan Industries Ltd hopeful of RBI’s approval for international hedging of gold price: We hosted Titan management for investor meetings in Singapore recently. Most questions were obviously on regulatory scenario and how Titan is engaging with RBI. Titan management has appealed to RBI to be allowed to hedge the gold price risk internationally as local MCX liquidity is not high enough to cover Titan’s scale and contracts lengths are ineffective. Titan management is hopeful that RBI may look at their proposal favourably. We think this potential event will be significantly positive as the financial cost of upfront payment for gold is not material, but it is the gold price risk that exposes Titan’s inventory to material risk in the absence of effective hedging, a situation
Titan management describes as much more precarious than the pure financial cost.
Gold supply situation now improves: (i) Gold imports, which were almost halted since 22 July post-20:80 export regulation, have resumed, ahead of festive demand and Titan is hopeful of securing its own supply. (ii) Titan has also started to explore ways to export on its own either directly, selling to an exporter or through wholesale route, which will also enable it to use its direct import licence. In any case, Titan is not looking to make large capital investment to achieve this. (iii) While compliance with the export ruling doesn’t apply to Titan but impacts the importing bank or the nominating agency, it still favours jewellery exporters, who become the essential entity by virtue of their presence and operation in the value chain; gold can be imported for domestic consumption and hence will demand a compensation. (iv) Another issue is that gold smuggling has increased as a result of duty increases and import restrictions and is causing a distortion in the market pricing of gold and level playing field with unorganised market of jewellery. While Titan admits this distortion is an issue, it also believes that the trust Titan enjoys still creates its pull.
Jewellery expansion plans are on track: Titan nonetheless is upbeat about the prospects of the organised jewellery industry and has no plans to change its expansion plans this year (remains 100k sq ft for FY14) unless there is severe gold supply issue. Titan also confirms that large format store expansion is now complete and it is looking to add marginal area in L2 (where inventory is owned by