India Gold Update ( 2QFY15) : Volatility expected to continue :: HDFC Sec, link

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Volatility expected to continue
Post the reintroduction of gold-on-lease by the RBI in
May-14, organised jewellers have partially
recommenced sourcing gold under the scheme from
bullion banks. As a result, organised jewelers such as
Titan (BUY), TBZ (NR) and PC Jewellers (NR) are
currently sourcing between 30-50% of their gold
requirements under this scheme. At the same time, in
spite of curbs remaining on Indian gold imports
through 20:80 export-import rule and import duty of
10%, 2QFY15 gold imports of 204 tonnes increased
124% YoY (202 tonnes in 1QFY15). This has again led
to concerns on introduction of fresh restrictions to
curb gold imports.
Although we await clarity on the nature of possible
restrictions, we believe that large players such as
Titan will be affected only in case of some severe
measures to curb gold supply. Titan’s stock price has
corrected by 15% post 2QFY15 results to Rs 359/sh on
the back of management guidance for muted
demand in 2HFY15E and recent news flow on
tightening of gold import curbs.
However, we believe that although demand uptick
may remain muted in 2HFY15E with single digit YoY
revenue growth, Titan remains the best play on an
urban consumption revival. With the reintroduction
of the Golden Harvest Scheme in Nov-14 (pls refer
page 6-7 for revised scheme details) that accounts for
25-30% of Titan’s jewellery revenues, we expect
growth to return from FY16E onwards and reiterate
our BUY rating with TP of Rs 454 based on 30x FY17E
EPS of Rs 15.1. In our view, investors should buy into
any correction in Titan’s stock price driven by
regulatory uncertainty.
2QFY15 gold imports surge 124% YoY
 Curbs on gold imports due to 80-20 import-export rule
had resulted in gold imports falling sharply to 91
tonnes in 2QFY14, 114 tonnes in 3QFY14 and 119
tonnes in 4QFY14. However, 1QFY15 (Apr-Jun 14) had
seen an uptick in gold imports to 202 tonnes owing to
better implementation of the 80-20 rule. For 2QFY15,
gold imports have risen 124% YoY to 204 tonnes owing
to low base of 2QFY14 when gold import restrictions
were introduced.
Quarterly demand volatility continues
 India gold volume demand increased 52% YoY to 225
tonnes in 2QFY15 led by steep surge of 75% in
jewellery demand owing to low base effect of 2QFY14
where both demand and supply had slowed down
significantly. However, investment volumes were down
3% YoY in 2QFY15 owing to sluggishness in gold prices.
In value terms, India gold jewellery demand increased
47% YoY in 2QFY15 led by improved economic
sentiment, lower gold prices and earlier onset of the
festival season. We believe that in a case of
international gold prices remaining soft and
reallocation of higher share of domestic savings to
Indian equities, investment demand for gold will
remain a question mark in FY15-16E.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009935