Indian firm bucks gold’s downward trend

MUMBAI: While a strengthening dollar and an economic slump in China are battering stocks of jewellers from Tiffany & Co to Chow Tai Fook Jewellery Group, one company in India is predicting a demand recovery after gold slid to a five-year low last week.

Rajesh Exports, India’s biggest exporter of gold jewellery, is betting the decline in prices of the yellow metal will lure buyers both in its overseas markets and in the South Asian country, helping boost revenue to a record, said chairman Rajesh Mehta.

Shares have surged almost fivefold this year, fuelled by its July purchase of Swiss refiner Valcambi that boosted its capacity sixfold.

“We are looking at a good order book,” Mr Mehta said. “This demand will continue for three to four months. Prices have been on the downward side this year and, because of that, volumes will be good.”

Expectations of an imminent increase in interest rates in the US have boosted the dollar and reduced the appeal of gold as an investment, delivering the third annual drop in prices.

In signs consumers are buying more, data from the World Gold Council showed physical purchases globally jumped 8% to 1,121 tonnes in the third quarter, the highest in two years.

Mr Mehta, 51, says his consolidated order book may grow almost 16% to 280 billion rupees (US$4.2 billion) by the end of the financial year in March, from 242 billion rupees now, mainly due to major markets such as the Middle East, the US and the Far East.

Shares of the Bengaluru-based company surged to a record 729 rupees on Dec 1 and the stock is the best performer this year on India’s BSE500 Index and among the top 10 gainers on the Russell Emerging Markets Index.

In contrast, shares of Chow Tai Fook, the world’s largest publicly traded jewellery chain, have slumped 49% this year, Tiffany has dropped 28% and that of Cie Financiere Richemont SA fallen 18%. Locally, shares of Titan Co have slid 5.1% and those of Tribhovandas Bhimji Zaveri slumped 40%.

Not all investors are bullish about the prospects of gold jewellery retailers in India as demand for bullion as an investment is shrinking with declining prices.

Given the “crazy run-up” in Rajesh Exports’ stocks in the past three to six months, investors should be cautious, said Gaurang Shah, vice-president at Geojit BNP Paribas Financial Services in Mumbai. “You can trade but investments should be limited in this stock.”

Valcambi will play a crucial role in the growth of Rajesh Exports and will contribute to 75% of its revenue this year, Mr Mehta said.

Rajesh Exports bought the Swiss refiner from owners including Newmont Mining Corp for $400 million. Valcambi processed and sold an average of 945 tonnes of gold and 325 tonnes of silver annually during the last three financial years. The acquisition takes the company’s total refining capacity to 2,400 tonnes per year from 400 tonnes earlier. Rajesh Exports also owns 80 retail jewellery stores in the southern Indian state of Karnataka.

“I am seeing a surge in buying of gold and diamond-based jewellery as Indians always have a liking for them,” said Suniil Pachisia, vice-president at Pratibhuti Viniyog in Mumbai. “Currently demand for jewellery is high as the Indian wedding season is on.”

The gold council forecasts global demand this year at 4,200 to 4,300 tonnes from 4,217 tonnes last year, while India’s consumption is estimated at 850-950 tonnes from 811 in 2014.

After the Valcambi buy, Rajesh Exports is also looking at further acquisitions as it seeks to cement its role as a major player in the global bullion industry.