India's Titan On What's Slowing Gold Demand
Titan's Managing Director Ajoy Chawla says gold rate volatility, and not the macros has been the biggest challenge for the company in recent times. He said this in an exclusive conversation with BTV's Menaka Doshi.
In the past quarter, Joy, you had described the operating conditions as being, I think challenging. You said was not so favorable if I remember the exact words uh from the conference call. How would you describe them now? uh given the kind of year this has been for economic growth.
Yeah, I think I would say the economic challenges are not too bad. I think the macros have played out reasonably okay. Um the challenges are coming on account of gold rate volatility. You know, it went up and then it came down and therefore whenever you see this volatility, uh many people, many customers tend to be a little fence sitters. And we know that even though it came down, it is still much higher compared to the previous year and the year before. So, people are unsure whether government will once again cut customs duty or whether there is going to be a further correction thanks to whatever is happening in the US with the fed. So that uncertainty, people then to then wait. Okay. So I would say on the gold jewelry side with plain gold, things continue to be, you know, from a buyer growth point of view, a little unstable. People are waiting to see what happens and this is not the quarter where a lot of buying happens in gold anyway because weddings and festive is all sitting in the next second half. So people tend to be a little more watchful on what's happening. On studded, I think it's been quite good and we continue to see fairly decent, healthy buyer growths as well as overall growths. There is growth nevertheless, but when I'm saying unstable is to do with buyers.
Okay. Can you elaborate on that? Do you mean by new buyers coming to your. Yes.
New buyers as well as with gold rates today having gone up so much and I'm saying the India gold rate is a function of both the dollar as well as the international and the duties. Uh it's very difficult for many people to buy into gold jewelry if they don't have a minimum 75, 80,000, 100,000 rupees in their pocket because you know anything which is three, four grams also takes it beyond that. So that has played a little bit of a dampener for the what I would call is the traditional everyday gold buyer. Gold jewelry buyer. Okay. Not necessarily the modern and not necessarily the adornment, not necessarily the upscale and self-expressive. Or the event or the event or event led buyers or occasion led buyers. So this is the ones who buy the, you know, machine-made bangles, small rings, small earrings, traditional who buy it also a lot because of the investment value as well as, you know, gold is a safe thing. So now those customers find it difficult to get in and therefore we need to figure out how to bring those customers in by giving them lightweights and other options. We are trying that, but beyond a point, you know, it has an impact. The catalog gets vacated. Below 50,000 in gold, the catalog gets vacated very easily.
Typically, one would think that having to pay a higher tax of any kind would be a disincentive from buying something. But higher taxes for gold tend to kick in when gold prices move up significantly, which is either a reflection of volatility, you know, across the world, you know, or economic volatility, so either political or economic. At which point buying gold as a hedge becomes even more important. So, I'm just curious, like, how have you seen the impact of customs duty play out on this demand? And tomorrow if that duty was to be reduced or taken away, would you see a big surge? Or would that be interpreted, you know, completely differently saying, okay, maybe gold is not as big a hedge, so maybe we'll just step back from buying.
I think a couple of things have happened because of custom duty going up. I talked about the first part where the price of the jewelry has become because of gold becoming dearer has in a way impacted many customers. And also the other angle that has happened from a customer angle is now people are thinking whether there's going to be a duty reduction because you know, different people have different views. There's one school of thought which says gold price is going to keep going up. Another school of thought says gold price will get corrected down because government may government may reduce custom duty. And why are they saying that? because there's been a lot of smuggling of gold which has gone up in the country. I don't have a figure around it, but all I know is that the MCX is at a discount with the LBMA gold rate. And clearly there's a lot of gold coming in in some form. So the government had to raise the duties because they needed to manage the balance of payment related pieces, but they I'm sure mindful of the fact that uh, you know, this is not sustainable. So at some stage they may need to bring it down. Now, that's the, that's the big piece as to when and customers then will keep guessing.
The other impact I wanted to ask you about is whether a weak monsoon that could potentially hurt rural incomes also plays out, you know, in the factors that influence demand for you. Are you seeing that play out in these three months because really rainfall has been deficient?
So, I think the El Nino effect and the weak or the rather unpredictable monsoon excesses and shortfalls will will show up sometime in the rural uh buying power. But it may play out in the latter part of the year. Because this is the part of the year where it is happening or happened. So, we'll know exactly how it plays out in Q3, Q4. uh especially on the rural segment. But so far, at least from whatever I'm seeing from other surrogates in rural, whether it is motorcycles or other typical categories, they have not yet seen. Okay. But it may throw up. Okay. I can't rule it out.
