Investors are cautioned that this discussion contains forward-looking
statements that involve risks and uncertainties including, but not limited to, risks
inherent in the Companys growth strategy, acquisition plans, dependence on certain
businesses and other factors. The following discussion with the Companys financial
statements included herein and the notes thereto:
INDUSTRY STRUCTURE AND DEVELOPMENTS:
It has been observed, experienced, and proven that gold is the most
secure form of investment around the globe. No wonder, even in todays world, wherein
there are several lucrative investment options available, gold remains the most popular
form of investment.
The volatile nature of the investment market has resulted in paper
currencies lose their value and thus depreciating the market to a large extent. Despite
such a situation, gold maintained its position, thus securing the interest of its
investors.
The reasons for investing in gold are as follows:
• Handy Against Inflation: Gold is treated as a hedge against
inflation. Regardless of the market downfall or, the way a particular currency fares in
the market, gold offers some relief to these unforeseen circumstances.
• Consistent Appreciation of Rates: Over the past decades,
there has been consistent appreciation in the gold prices. This gives investors the
purpose to invest in gold.
• Gold Reserves: Usually, central banks of many countries try
and refrain from selling gold and aim at enhancing the gold reserves. Thus gold is
observed to be a reliable source of investment.
• Long-Term Investment: Some people are influenced by
conventional forms of investment, such as long-term investments. For such people, the
consistent appreciation in gold prices forms up another reason for investing in gold.
SEGMENT INFORMATION:
Bullion and Jewellery:
India is the largest consumer of gold in the world. Rising middle class
population and increasing income levels are the key drivers for the demand of gold and
other jewellery in India. Gold demand in India increases year-on-year. The Government
of India has permitted 100 per cent Foreign Direct Investment (FDI) in the sector under
the automatic route.
Indian Government made hallmarking mandatory for Gold Jewellery and
Artefacts. Gold Jewellery to include a BIS mark, purity in carat and fitness as well as
the units identification and the jewellers identification mark on gold jewellery. The
move is aimed at ensuring a quality check on gold jewellery.
Gold is bought around the world for multiple purposes - whether as a
luxury good, a component in high-end electronics, safe-haven investment, or a portfolio
diversifier. The economic development that emerging markets, especially China and India,
have experienced for almost two decades has increased and diversified golds consumer and
investor base. The advent of exchange-traded products reduced total cost of ownership,
increased efficiencies, provided liquidity and access, and brought new interest - and
demand - into gold as a strategic investment.
Market Size:
Indias Gold Jewellery Demand Slips 2% To 600.4 Tonnes In 2022; Gold
Imports Plunge 27% Total jewellery demand in India for 2022 was down by 2% to 600.4 tonnes
as compared to 610.9 tonnes in 2021, it noted. The value of Indian gold jewellery demand
in 2022 was up by 4% to ^272,810 crores, from 2021 (^261,150 crores).
For FY 2022-23, the overall gem & jewellery exports grew 2.48% to
Rs 3,00,462.52 crores as compared Rs 2,93,193.19 crores for the same period previous year.
Timely implementation of the India-UAE Comprehensive Economic
Partnership Agreement (CEPA) by the Ministry of Commerce & Industry, has resulted in a
remarkable 17% growth in exports of plain gold jewellery in 2022-23. Indias major export
markets remained the US, Hong Kong and UAE."
India is one of the largest exporters of gold jewellery and the
industry is considered to play a vital role in the Indian economy as it contributes a
major chunk to countrys foreign reserves. The Goods and Services Tax (GST) will steer
Indias gold demand going forward.
But we can also interpret and measure the size of the gold market in
terms of its liquidity. The average daily trading volume for gold ranks among the largest
financial assets in the world. Indias gold imports, which have a bearing on the current
account deficit, dipped 24.15 per cent to USD 35 billion in 2022-23 due to global economic
uncertainties, according to data from the commerce ministry.
Indian Scenario:
Last year, the Government hiked gold import duty from 10.75 per cent to
15 per cent and thus the demand for the gold has fallen. The countrys gold imports dipped
by 24.15 % percent in F.Y. 2022-2023 due to global economic uncertainty and high import
duty.
With domestic bullion prices hitting a record high, Indias gold demand
in 2023 is expected to fall to the lowest level in 26 years, according to the World Gold
Council.
The growth rate in the imports was in the negative zone during August
2022 to February this year. According to industry experts, high import duty on gold and
global economic uncertainties have led to the dip in imports of the precious metal.
India imported about 600 tons of gold during April-January 2023, and it
is decreased because of high import duty. India is the largest importer of gold, which
mainly caters to the demand of the jewellery industry. In volume terms, the country
imports 800-900 tons of gold annually.
India is the largest consumer of gold in the world and accounts for a
quarter of the worlds total consumption of gold. India uses gold primarily in the form of
jewellery and secondarily for investments. Gold rates in India change on a daily basis on
many factors. These include the demand and supply, global market conditions and currency
fluctuations in the country.
Opportunities:
Increasing middle class population is expected to drive growth in the
future and is expected to lead to an increase in demand for gold. Also, Indias population
is increasingly becoming urbanized, which is expected to boost household income, thereby
leading to higher demand for gold and other jewellery. The jewellery demand is also
increasing steadily due to changes in its role from just being an item of adornment and as
a store of value to a life style and fashion accessory.
India is a traditional and stable market for gold consumption.
Investors have purchased gold as a safe haven. Gold is a highly liquid yet scarce asset,
and it is no ones liability. It is bought as a luxury good as much as an investment. As
such, gold can play four fundamental roles in a portfolio:
• a source of long-term returns.
• a diversifier that can mitigate losses in times of market
stress.
• a liquid asset with no credit risk that has outperformed fiat
currencies.
• a means to enhance overall portfolio performance.
Continued economic growth underpins gold demand. As incomes rise,
demand for gold jewellery and gold-containing technology, such as smart phones and
tablets, rises. Income growth also spurs savings, helping increase demand for gold bars
and coins. Increased consumer demand supports the investment case for gold and highlights
its dual nature.
Investors often focus on golds effectiveness as a hedge against
financial shocks. But rising wealth underpins gold consumer demand, which, in turn,
supports gold prices over the long- run.
Threats:
The government has increased import duty for Gold & Silver (from
10.5% to 15.0%) and Platinum & Palladium (from 10.75% to 15.40%).
Gold schemes has been launched to discourage physical gold purchases
and reduce imports.
Also, The Finance Minister in Union Budget 2023 announced that
conversion of gold into e-gold would not be liable for capital gains with an aim to
promote the concept of electronic gold which would ultimately result in less purchase of
physical gold by the consumers.
Gold industry in India has always been greatly impacted by the
government regulations and controls.
Challenging macroeconomic environment further impacted by the trade
wars, unstable geopolitical conditions, and weak consumer sentiments may impact the
jewellery industry tremendously. Changes implemented by the regulatory authorities has
been challenging for the industry and so for the company. The Company is well compliant
with all directions, changes and regulations implied by the government on gold industry
from time to time.
The continual political chess game between the United States and China,
the potential for further deterioration of internal conflicts within the United States,
Russia-Ukraine war and the possibility of further retreats in the global equity markets,
all underpin golds potential as a risk- diversifier
INDIAs huge gold bullion and jewelry industry faces key
"transition" risks in FY 2022-2023 according to expert analysis, with new
financial rules adding to the pressure from weak sales, with the Rupee falling, and gold
prices nearing multi-year highs, FY 2023-2024 will continue to be "no less
challenging" than FY 2022-2023. The factors that could affect the industry in coming
years are Insolvency & Bankruptcy Code, 2016, Proposed Banning of Unregulated Deposits
Scheme Bill, 2018, Increase In Risk Profile of Jewellery Industry, Falling Share of
Bullion Imports, Benchmarking The Gold Lease Rates, Mandatory Hall Marking, Widening Trade
deficit etc.
Shift of investments in Gold from physical gold to Sovereign Gold Bonds
(SGB) and other similar electronic investment like Digital gold, Gold Mutual funds, Gold
etfs, Sovereign gold bonds etc. Sovereign Gold Bonds (SBGs) are government securities
denominated in grams of gold. They are substitutes for holding physical gold. The Bond is
issued by Reserve Bank on behalf of Government of India. SGB is free from issues like
making charges and purity in the case of gold in jewellery form.
Risks and Concerns:
The Indian government has proposed significant changes to the GST rules
for gold in the coming years. From 2023, GST on gold will be calculated as a fixed
percentage of 4%. This is different from the current system where the Gold GST is
calculated based on the weight and purity of the gold sold. Thus leading to increasing the
total price of the Gold purchased by consumers.
The Company is largely dependents on domestic customers. The Company
continues to work towards diversifying its customer mix and to focus on building
relationships with customers spread geographically.
The Company is exposed to regulatory uncertainties facing the jewellery
industry in India. Any changes in the duty, rules and regulations, policies or
requirements by the Government of India may require the Company to revise business
strategies which may impact its financial position adversely.
The prices of Gold are largely governed by movements at major precious
metal exchanges of London, New York, Tokyo and others. The local precious metal prices are
an algorithm of these movements on spot basis and Indian currency Rates. Prices may
fluctuate widely for all products affecting demands in the market. The Company has adopted
adequate mechanisms to effectively counter the risk that arises during operations.
However, the management cannot totally eliminate the risks involved in such volatile
trades.
Significant additional competition in the gold trade may result in
reduced off-take and thereby negatively affect the Companys revenues and profitability.
Further Company has in place a comprehensive risk management framework
that helps in anticipating, identifying and evaluating business risks and challenges
across the Company and finding ways to mitigate the same.
Fluctuations in commodity prices and adverse regulatory changes may
pose a threat to the Companys margins and profitability.
Outlook:
• The four attributes that make Gold attractive as a strategic
investment:
• It has been a source of return for investors portfolios.
• Its correlation to major asset classes has been low in both
expansionary and reversionary periods.
• It is a mainstream asset that is as liquid as other financial
securities.
• It has historically improved portfolio risk-adjusted returns.
According to the WGC, impact of Covid pandemic has been terrible in our
country which results into unemployment for many people which is negative for the gold
demand, as low income or no income would translate into lower demand for gold jewelry,
gold-containing technology, as well as for gold bars and coins.
In the long term, the expansion of wealth has a positive effect on
demand for gold jewellery, technology, and to some extent bar and coin demand - the latter
in the form of long-term savings. Investment demand can, over the short and medium term,
also strongly influence golds performance. This type of demand, from the physical (and
physically backed) markets to exchange-traded derivatives and over-the-counter products,
increases during periods of economic and political uncertainty and falls as investor
confidence grows.
The relaxation of restrictions of gold import is likely to provide a
fillip to the industry. The improvement in availability along with the reintroduction of
low-cost gold metal loans and likely stabilisation of gold prices at lower levels is
expected to drive volume growth for jewellers over short to medium term. The demand for
jewellery is expected to be significantly supported by the recent positive developments in
the industry.
Internal control systems and their adequacy:
The Company has an effective internal control system, commensurate with
the size, nature, and complexity of its business operations. It also ensures that all the
assets of the Company are safeguarded and protected against any loss from unauthorized use
or disposition. The Internal Auditor carry outs review of the internal control systems.
The internal audit reports are periodically reviewed by Audit Committee.
The Company has also put in place adequate internal financial controls
with reference to the financial statements commensurate with the size and nature of
operations of the Company. Based on the assessment carried out by the management and the
evaluation of the results of the assessment, the Board of Directors are of the opinion
that the Company has adequate Internal Financial Controls systems that are operating
effectively as of 31st March, 2023.
There were no instances of fraud which necessitates reporting in the
financial statements. Further, there have been no communications from regulatory agencies
concerning non compliance with or deficiencies in financial reporting practices.
Financial Performance
The financial statements have been prepared in accordance with the
Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act,
2013 and t he Companies (Indian Accounting Standards) Rules, 2015 as amended from time to
time and other pronouncements / provisions of the applicable laws. The financial
statements have been prepared on a going concern basis and the accounting policies adopted
in the preparation of the financial statements are consistent with those followed in the
previous year.
Government Initiatives:
The selling of hallmarked gold jewellery or gold antiquities without a
6-digit alphanumeric Hallmark Unique Identification Number (HUID) is prohibited by the
Bureau of India Standards (BIS) after March 31, 2023. This move will protect consumers and
strengthen their trust in purchasing hallmarked gold jewellery with tractability and
quality certification. Indian Government made hallmarking mandatory for Gold Jewellery and
Artefacts. The gold jewellery hallmark will now carry a BIS mark, purity in carat and
fitness as well as the units identification and the jewellers identification mark. The
move is aimed at ensuring a quality check on gold jewellery.
Introducing Gold Card Scheme
Taking into account the anticipated export turnover of the exporter,
the bank can provide need- based business loan limits with a liberal approach. The
in-principle limit will be sanctioned for a period of three years with a provision for
automatic renewal subject to fulfilment of loan terms and conditions.
Gold card holders would be given preference by the banks for granting
of packing credit in foreign currency. Further, banks will also consider giving term loan
in foreign currency for deserving businesses out of the FCNR funds. Interest concession
can also be given by the banks with a soft bias toward gold card holders, through a
transparent mechanism.
The Government of India has planned to set up a Common Facility Center
(CFC) at Thrissur, Kerala.
The Government of India launched the Gold Magnetization Scheme to
reduce the countrys reliance on gold imports to meet the domestic demand.
The Government of India has approached jewellers and bullion dealers on
how to tap Indias idle gold. The industry proposes aligning the income tax law with gold
deposit schemes, raising gold holding limits under Streedhan, tweaking the GMS to make
it more attractive, and giving greater flexibility to local refineries to scale up as part
of a broader gold policy.
Road ahead:
In the coming years, growth in gems and jewellery sector would largely
be contributed by the development of large retailers/brands. Established brands are
guiding the organised market and are opening opportunities to grow. Increasing penetration
of organised players provides variety in terms of products and designs. Online sales are
expected to account for 1-2% of the fine jewellery segment by 2022-23. Also, the
relaxation of restrictions of gold import is likely to provide a fillip to the industry.
The improvement in availability along with the reintroduction of low-cost gold metal loans
and likely stabilisation of gold prices at lower levels is expected to drive volume growth
for jewellers over short to medium term. The demand for jewellery is expected to be
significantly supported by the recent positive developments in the industry.
Cautionary statement:
Certain statements made in the Management Discussion and Analysis
Report relating to the Companys objectives, projections, outlook, expectations, estimates
and others may constitute forward looking statements within the meaning of applicable
laws and regulations. These forward-looking statements are based on assumptions and the
Company does not guarantee the fulfillment of the same. Actual results may differ from
such expectations whether expressed or implied. Several factors could make significant
difference to the Companys Operations. These include climatic and economic conditions
affecting demand and supply, government regulations, taxation, and natural calamities over
which the Company does not have any direct control.
Human resource development:
The Company acknowledges that its principal asset is its employees. The
Company believes in establishing and building a strong performance and competency driven
culture amongst its employees with greater sense of accountability and responsibility. The
industrial relations have remained harmonious throughout the year.
By order of the Board
For Royal India Corporation Limited
Sd/-
Nitin Gujral Managing Director DIN:08184605
Date: 14th August, 2023 Place: Mumbai
+91-9892691696
