Scrapping 80:20 scheme to ease gold supply -Hold Titan ::ICICI Securities, link

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Scrapping 80:20 scheme to ease gold supply
The government has decided to scrap the 80: 20 rule on gold import,
which mandated that a fifth of the gold imported has to exported. The
government’s decision to scrap the 80:20 rule appears to be driven by the
improved current account deficit (CAD) position, lower crude prices and
concerns over increased level of gold smuggling. We believe this move
will increase supply of gold in the domestic market and reduce the
premium paid on gold. However, if the CAD position deteriorates in future
owing to a surge in gold imports, the possibility of some other curbs
cannot be ruled out. In the near term, we believe the scrapping of the
80:20 rule is positive. Hence, we maintain our HOLD recommendation on
Titan Company with a target price of | 430.

The government had imposed the 80:20 rule for gold imports in August
2013, which restricted the supply of gold and resulted in the premium on
gold spurting sharply. In May 2014, the government relaxed the
restriction imposed earlier by allowing star trading houses to import gold.
However, supply still remained constrained due to the overall 80:20 rule
and banks could not freely procure gold and lease them to jewellers. With
the scrapping of the 80:20 rule, supply of gold to the industry will ease.
Titan currently procures 30% of its gold requirement through gold on
lease and scrapping of 80:20 rule would enable it to procure higher
quantum of gold through gold on lease. It would be positive from the
balance sheet perspective as gold on lease is a low cost hedging
mechanism that will enable Titan to expand without resorting to debt.
We remain positive on Titan and maintain our view that the company will
be able to garner higher market share due to a shift from unorganised to
organised players. We maintain HOLD with a target price of | 430 (30.0x
FY17E EPS of | 14.3)

LINK
http://content.icicidirect.com/mailimages/IDirect_TitanCo_QC_Dec14.pdf