Thangamayil Jewel

The various stringent measures taken by the Govt to curb gold buying left a telling effect on the likes of Thangamayil. The company ended Q4FY14 with a net loss of Rs.20 crore; the loss has increased more than three times YoY and sequentially. The 21% (YoY) drop in net sales at Rs.281 crore was the beginning of this story of loss. Operating costs surpassed the sales and then it was all downhill. The company ended the fiscal with a  net loss of Rs.12 crore compared to the net profit of Rs.30 crore in FY13.

The good news is that there is some light at the end of this tunnel for gold companies. Last week, RBI eased the strict import restrictions placed on gold by allowing select trading houses, in addition to already permitted banks, to procure the precious metal to boost exports. It has stated that Star trading houses/premier trading houses (STH/PTH), which are registered as nominated agencies by the Director General of Foreign Trade (DGFT), may now import gold under 20:80 scheme.  Till date, this facility was available only to select banks and restricted for others and now it has been opened up for others too. The revised guidelines have come into force with immediate effect. This move will increase the supply of gold in the market, which in turn will reduce gold prices and drop in premium levels. This in turn means that margins for retail jewelers like Thangamayil, will improve due to lower gold procurement prices and fall in interest cost on borrowed funds. A 2-4% improvement in bottom line for retailer is expected with this move. Moreover thanks to the tough year, the company cut costs and rationalized inventory, helping bring down its debt from Rs.326 crore in FY13 to Rs.213 crore in FY14. Looks like the worst is over for gold retailers.