Outlook Business — December 07, 2017

86

My Best Pick

22 December 2017 / Outlook BUSINESS

T

he area near the south entrance of the

famous Meenakshi Amman temple of

Madurai is home to over 5 , 000 large

and small jewellery showrooms. Amid

this swarm of glitzy facades, lies the distinctive fl ag-

ship store of Thangamayil Jewellery (TMJL). Span-

ning 12 , 000 sq ft , it is one of the largest retail show-

rooms in the south.

Thangamayil was set up in 2000 by BA Ramesh and

his two brothers, who along with their father ran the

predecessor, Balu Jewellery. Thangamayil, which

means ‘Golden Peacock’ in Tamil, has a deep associa-

tion with Goddess Lakshmi. Besides signifying royal-

ty and prosperity, Thangamayil associates itself with

high quality products and customer service. In fact,

it was one of the fi rst to only sell hallmarked jewellery

long before it was mandated by the government. On

the back of this brand strength, from a single store

company in June 2001 , TMJL now operates 32 stores

across tier–II and tier-III cities of Tamil Nadu.

THE PERFECT STORM

Rising from $ 17 billion in FY 08 , India’s gold imports

crossed 1 , 000 trillion mark, amounting to $ 56 billion,

in FY 12. Along with rising oil imports and depreciat-

ing rupee in FY 13 , the current account defi cit (CAD)

soared to more than 4. 7 %, of which gold imports ac-

counts for 2. 8 %. To keep this in check, the govern-

ment increased customs duty from 2 % to 10 %, which

did not help much. Later, the RBI restricted credit

for gold imports and also implemented the 80 : 20 rule

(importers had to export a minimum of 20 % their im-

ports). These measures helped rein in gold imports,

bringing down the CAD to 1. 7 % in FY 14.

While supply was controlled, measures such as 1 %

excise duty, mandatory furnishing of PAN card for

purchases above # 2 lakh and mandatory hallmarking

were implemented in 2015 and 2016 , impacting de-

mand for jewellery. As jewellery demand is primarily

wedding-driven, families start planning and saving

long time before the actual purchases. A substantial

chunk of these savings was in the form of long-term

deposits with jewellers through various schemes.

With the implementation of the Companies Act 2013 ,

jewellers could no longer accept deposits longer than

12 months, causing disruptions on demand side.

The RBI’s restriction on credit for purchase of yel-

low metal had another consequence. Inventory is the

largest component of a jeweller’s balance sheet. Jew-

ellers used gold-on-lease scheme of banks to procure

gold which cost them 3 %- 5 %. With this restriction,

jewellers had to use a bank’s working capital facil-

ity, at a rate of over 10 %, for inventory purchases.

The simultaneous disruption of supply and demand,

along with the ballooning fi nance costs destroyed the

profi tability of the industry.

LIGHT AT THE END OF THE TUNNEL

Finally, crude oil prices started to moderate and so

did the CAD. While some regulatory measures such as

the restriction on gold-on-lease scheme and 80 : 20 rule,

were reversed, the industry slowly started adapting it-

self to the new environment. As confi dence was being

restored, demonetisation happened and this again im-

pacted the industry. However, it didn’t last for long.

But the big kicker came in when GST was implement-

ed with a rate of 3 % on gold jewellery. Jewellers could

now avail of input tax credit on rents and A&P spends

which would, to an extent, help them improve margins.

Note: Market related data as on December 1, 2017; Financials

for FY17; Consolidated fi nancials considered wherever applicable

Data: Ace Equity

The Midas touch

Smart inventory management has led to profi tability

FY14 FY15 FY16 FY17

Source: Company

Total Income PAT

-13

-22

11 14

1,196 1,423

1,274

1,295

in #cr

net sales

stock price# 556 M-CAP# 763 cr

ROE 9.65%

#1 ,294cr