The Alchemist

Titan’s gold-exchange programme has helped it manage its working capital expenses, and accelerate its sales

Vishal Koul

Rewind to the year 2013 — the last year of the UPA-II government. With the economy in shambles and a worsening fiscal deficit, the government announced several measures to curb gold imports. That July, the RBI banned gold leasing. Banks and nominated agencies were free to import gold, but they could pass it on to jewellers only against full payment (and not on lease, like earlier). That escalated the jewellers’ working capital requirements. A month later, in August, the government delivered another blow. It imposed the 80:20 import rule — up to 80% of gold imported could be sold in the country on the condition that 20% was exported.  

Those were the bad years, and the memories still haunt jewellers. “The regulations had severely impacted the financial health of organised jewellers as working capital needs (and consequently debt) increased. Jewellers had to purchase gold upfront. This meant a significant increase in capital employed and return ratios took a hit,” recalls Jay Gandhi, AVP - consumer discretionary, HDFC Securities. 

Titan, which runs the country’s largest organised jewellery chain — Tanishq — also came under pressure. According to Gandhi, Titan’s debt shot up from Rs.12.4 billion to Rs.21 billion between FY13 and FY14. Its interest coverage fell from 19 times to 11 times, and return on equity declined from 42% to 33%.

Sandeep Kulhalli SVP-Retail & Marketing, TitanDespite temporary setbacks, Titan managed to survive this phase fairly well, says Sandeep Kulhalli, senior vice president-retail & marketing, Titan. “We pushed the envelope on gold exchange at that time, which clicked.” 

Gold exchange, which Kulhalli talks about, is one of the three ways in which organised jewellers in India source their gold. One is through customers looking to exchange old jewellery for new pieces. The other two ways, typically, are imports (either dire


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