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Consumers defer old gold sales on hopes of further rise in prices

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Gold


After a buoyant June quarter, Indian consumers are now staying away from fresh sale of old or used gold and jewellery to generate cash in July and August, due to forecasts of a further rise in bullion prices.


Data compiled by the World Gold Council (WGC), the global gold miners’ body, estimated a record 37.9 tonnes of gold recovered from scrap jewellery in April-June 2019 quarter, up 18.4 per cent from 32 tonnes reported in the corresponding period last year.



Trading at Rs 31,648 per 10 grams on April 1, 2019, standard gold price spiked to touch Rs 33,500 per 10 grams towards the end of the June quarter, Such a price level had not been not seen in the past six years and tempted consumers holding old gold to encash it. The price further jumped from the June-end level by 12 per cent to Rs 37,519 per 10 grams on Wednesday, August 14.


“Indian consumers found a good opportunity to sell their used ornaments for cash in June quarter,” Somasundaram P R, managing director (India), WGC had said while unveiling Gold Demand Trend data for June quarter.


ALSO READ: Gold prices likely to remain firm amid weak growth, soft rates



Since then, gold started moving up in the international market following estimates of US Fed’s interest rate cut, which weakened dollar but strengthened bullion. Analysts started forecasting robust safe-haven buying in gold amid fears of escalation in the ongoing trade war between the United States and China, and geo-political tensions in West Asia following global economic sanctions on Iran.


“There has been less consumer turnout for sale of used jewellery since July due primarily to hopes of further price increase. Used jewellery sales have declined by 50-60 per cent in six weeks starting July 1,” said Manoj Kumar Jha, Managing Director, Kamakhya Jewels, a Mumbai-based jewellery maker and retailer.


Echoing a similar response, Anantha Padmanaban, Chairman of All India Gems and Jewellery Domestic Council (GJC) and managing director of Chennai–based NAC Jewellers said, “Indian consumers sell old jewellery only when they need urgent cash. Most had already sold their allocated quantity in the June quarter. Hence, sale of scrap jewellery in July and August has been significantly lower. We estimate a sharp decline in used jewellery sales during September quarter.”


Farmers normally mortgage or sell their old jewellery with the onset of the monsoon to buy seeds and fertilisers, and recover ornaments after harvesting the crop. Since they had prepared to make purchases of seeds and fertiliser in the June quarter, their old jewellery sales were lower in July and August.


“With gold price hitting seven-year high in the international market and a life-time high in India, domestic consumers are waiting for an opportunity to make fresh purchases. Gold demand was weak the past few months. We estimate a rebound in jewellery demand during the ensuing festival season of Dussehra and Diwali. There will be less old gold jewellery sale now on,” said Rajendra Jain, managing director, Swarovski Gemstones, a jewellery maker and retailer.


Shaankar Sen, managing director of Kolkata-based Senco Gold estimates the need-based sale of old jewellery to continue with a recovery in demand of fresh ornaments in coming months.


“Indian consumers are habituated to see gold price at Rs 33,000 – 34,000 per 10 grams. With the current price prevailing at around Rs 38,000 per 10 grams, consumers are waiting for stability in gold prices in India. From the level of 30-40 per cent of business as of now, the jewellery sale will become normal with stability in gold prices,” said Sen.

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Market Updates

Sterling and Wilson Solar lists at 9% discount to issue price of Rs 780

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Brokers trade at their computer terminals at a stock brokerage firm in Mumbai. Photo: Reuters

Shares of Sterling and Wilson Solar (SWSL) debuted at Rs 706 apiece on the NSE, a discount of 9.48 per cent to the issue price of Rs 780. On the BSE, the stock got listed at Rs 700, 10 per cent lower against the issue price.

SWSL is promoted by the Shapoorji Pallonji Group and is the demerged Solar EPC Division of Sterling and Wilson (SWPL). The company commenced operations in 2011 as the Solar EPC Division of SWPL and demerged from SWPL with effect from April 1, 2017.


The company’s initial public offering (IPO), which ran between August 6 and August 8, was subscribed 92 per cent. The qualified institutional buyer (QIB) portion of the issue, however, garnered full subscription. The high networth individual (HNI) portion of the issue was subscribed 89 per cent, while retail investor portion was subscribed 30 per cent.

The total issue size was Rs 3,125 crore, of which around Rs 1,400 crore was raised from anchor investors.

The price band for the issue was Rs 775 and Rs 780 per share. At the top end, the company is valued at Rs 12,500 crore.

As per reports, SWSL reported a 44.4 per cent compound annual growth rate (CAGR) rise in consolidated operating revenue over FY16-19 to Rs 8,240.41 crore in FY19. Revenue was primarily aided by 43.9 per cent CAGR rise in the business from EPC contracts. EBITDA (earnings before interest, tax, depreciation and amortisation) grew at a CAGR of 50.4 per cent during the same period while Reported PAT increased by 72.1 per cent CAGR.

Most brokerages had assigned ‘subscribe’ rating to the issue.

SWSL is likely to benefit from the fact that is the the largest global EPC contractor in an industry that is seeing a massive thrust towards renewable energy, Motilal Oswal Financial Services (MOFSL) had said in an IPO note. Other factors that seem favourable are its asset-light business model, and strong parentage. “However, considering the current market environment and absence of past comparable financials, investors can Subscribe only from a Long Term perspective,” the brokerage had written.

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Mahanagar Gas zooms nearly 12% on reports of stake sale by British Gas

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WPI inflation soars to 14-mth high; rises to 4.43% in May from 3.18% in Apr


Shares of Mahanagar Gas (MGL) rallied as much as 11.55 per cent to Rs 878.35 apiece on the BSE in intra-day trade on Tuesday, after reports said BG Asia Pacific Holdings (BGAPH), a wholly owned subsidiary of Shell, sold 10 per cent stake in the company via block deals.


At 09:25 am, the stock was trading over 8 per cent higher at Rs 852.40 apiece on the BSE. A total of 4,12,292.6 million shares have been traded on BSE and NSE at the time of writing this report. In comparison, the benchmark S&P BSE Sensex was ruling flat at 37,439 levels, up 37 points or 0.10 per cent.


Earlier in April, Shell had reduced its shareholding in Mahanagar Gas from 32.5 per cent to 24 per cent. “This is part of Shell’s ongoing portfolio optimisation to transform Shell into a simpler company, delivering stronger returns,” Shell had said in its media statement. CLICK TO READ FULL ARTICLE

There was an indirect change in holding of one promoter of the company, when in February 2016, Royal Dutch Shell acquired BG (British Gas) worldwide.


For the quarter ended June 30, 2019, the company reported a 22.9 per cent year-on-year (YoY) increase in its revenue at Rs 831.2 crore, profit after tax (PAT) grew 32.7 per cent YoY to Rs 170.2 crore. EBITDA (earnings before interest, tax, depreciation and amortisation) saw an increase of 31.2 per cent to Rs 276.8 crore.






Analysts say the development is positive for the company and recommend investors buy the stock from a long-term perspective.

“We think this could be a good opportunity to accumulate the stock given attractive valuations at 12x FY20E P/E in the context of nearly 6 per cent free cash flow (FCF) yield and nearly 10 per cent FY19-22E earnings CAGR (compound annual growth rate), driven by margin expansion (from Rs 8.2/scm in FY19 to Rs 9/scm in FY20-22E) and nearly 6 per cent volume CAGR. Maintain Buy,” said foreign brokerage firm Jefferies in its recent report.


Those at ICICI Securities, too, remain positive on the road ahead for the counter and maintain a ‘buy’ rating on the stock with a target price of Rs 950.

“The government’s priority allocation of domestic gas to CGD sector has enabled MGL to access cheaper gas for CNG and domestic business segments, constituting nearly 85 per cent of total sales volume. MGL’s strong gas pipeline infrastructure and expanding operations in Mumbai, its adjoining areas and Raigad district will enable MGL to capture the benefits of the large and growing market given the low penetration,” wrote analysts at ICICI Securities in a results review note dated August 9.


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Bleak outlook for jewellers as record prices, fading demand hit gold sales

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gold


Jewelers in India, the top consumer after China, are facing a bleak outlook as record high prices and fading demand threaten to drag annual gold sales to the lowest in three years.


With demand growing 9% during the January-June period, jewelers were expecting consumption to increase after a subdued couple of years. Those hopes are evaporating after a combination of high taxes, record prices, slowing economic growth and floods in the South Asian country are poised to erode demand in the peak festival season that begins later this month.


“Everything is hitting us at the same time,” N Anantha Padmanaban, chairman of the All India Gem & Jewellery Domestic Council, said by phone. Full-year demand is expected to be at par with 2016, when consumption slumped to a seven-year low of 666 tonnes, as buyers restrict themselves to wedding-related purchases, he said.


India’s consumption of gold has been affected by the government’s efforts to curb its trade deficit and measures to discourage investors who used the metal to evade taxes. Prime Minister Narendra Modi’s administration increased the import tax on the precious metal in July, which pushed domestic prices to an all-time high of Rs 38,666 ($541) per 10 grams last week. Gold futures in Mumbai have gained about 17% since June on local factors and in tandem with overseas spot gold, which has rallied to a six-year high as the US-China trade war plays out.


ALSO READ: Analysts fear massive pull back in gold after sharp rally past five months



“A 5% or 7% jump itself was very difficult for us to convince the customers,” Padmanaban said. “But with a 20% hike in just 30-40 days, it is going to be hell for the next one or two months.”


The higher prices coincide with a slowdown in the Indian economy. Latest high-frequency indicators from auto sales to exports show demand at home and abroad is waning. A lingering crisis among shadow banks has curbed borrowings by consumers and companies, and an uncertain monsoon is casting a shadow on rural consumption and wages. Imports, which comprise almost all the gold that India consumes, slumped to the lowest monthly inflow in July since at least March 2016.


“Everybody is asking the organisation to do something to promote sales. But prices have to settle down,” Padmanaban said. “Even if we do a festival, at these prices customers won’t react immediately.”


More gains


Often consumer demand in the second-half of the year is more than 400 tonnes but it will be closer to 300 tonnes this year, Georgette Boele, senior FX and precious metals strategist at ABN Amro Bank NV, said in an email. India’s purchases during January to June totaled 372.2 tonnes, according to the World Gold Council, the highest for the period since 2013.


With recession fears shaking the global market as the trade war drags amid a turmoil in the equity and bond markets, gold will continue to climb further with many analysts forecasting a run up to $1,600 an ounce level.






ALSO READ: Now, banks can directly buy gold from depositors for monetisation plan



“Buying in the first half year was heavy, not just due to a high number of auspicious days in the period but because some buyers bought early in anticipation of higher prices and clearly they were right to do so,” according to Rhona O’Connell, head of market analysis for EMEA and Asia regions at brokerage INTL FCStone Inc.


Floods


The erratic Indian monsoon, which waters more than half of the country’s farmland, has been adding to concerns about demand as scant rains and floods affect crops and rural income. Farm incomes in India drive bullion purchases.


“It is easily foreseeable that this market will be under stress for the rest of this year,” O’Connell said by email. “There will come a point when the market adjusts to higher prices but that may be some way off yet.”


The monsoon rains were initially delayed and later gave way to heavy showers that caused floods in at least four states including the biggest gold-buying southern Indian provinces of Kerala and Karnataka. As of Monday, the death toll rose to about 189 in Kerala and Karnataka, with the two states evacuating almost a million people to safer places.


ALSO READ: Consumers defer old gold sales on hopes of further rise in prices



Jewelers usually start stocking up during this period for India’s festival season, which starts from late August and runs till October, and is followed by the wedding season.


“Our advise to all the jewelers is that at least for the next 40 days they have to lie low, not to invest much in jewelry, start selling whatever you have and then replace it,” Padmanaban said. “Imports will be weak.”

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