Malabar Gold Plan on Windfall Gains Post-GST, to Open 80 New Outlets

Expecting a favourable post-GST clime for gold industry, Malabar Gold is planning on investing Rs. 2,000 crores in 80 new stores to try and gain an early advantage over competitors like Tanishq and Kalyan Jewellers

Malabar Gold & Diamonds has decided to invest Rs. 2,000 crores to open around 80 new stores, expecting a favourable market post GST Implementation. Out of the 80 outlets, 40 will cater to the Gulf Cooperation Council (GCC) countries, 10 in markets like Sri Lanka, Hong Kong etc. and the rest in India. About 25% of the money, around, Rs. 500 crores will be invested by the company itself, with the rest will be borrowed from various sources. As of now, Malabar is the second largest jewellery retailer in India with 85 showrooms, behind Tata’s Tanishq, and has 97 stores abroad. Malabar Group, which also has significant stake in real interest, clocked revenue approximated at Rs. 26,000 crores in FY2016, up from Rs. 21,000 crore the previous year. Out of this, approximately Rs. 1,000 crores came from their real estate business, a sector in which they expect to expand significantly over the coming years.

Jewellery suppliers and the jewellery industry at large are expecting prices of gold to go down, given that a 3% GST rate will be applied to gold, similar to the rate which was being applied by most other states (the significant outlier being Kerala, which taxed gold at 5% rather than the usual 2%-3%). Not only is the incidence of taxation set to decline slightly, the simplicity of GST will erode the oftentimes archaic and perpetually labyrinthine set of taxes it replaces, thus booting efficiency. The World Gold Council (WGC) has hailed the GST as “the biggest fiscal reform since India's liberalisation in the early 1990s”. WGC further went on to add that it expects the Indian gold supply chain to become more transparent and efficient, adding that it expects the tax reform to boost economic growth, which is likely to support gold demand.

TechSci Research report “India Gems and Jewelry Market By Product Type, By Point of Sale, By Organized vs. Unorganized, Competition Forecast and Opportunities, 2011-2021”, estimated the growth of the Indian gems and jewellery landscape at double digits. Furthermore, it also pointed out the highly fragmented nature of the gold market as it currently stands. By some estimates, regional national chains only account for around 30% of the market, with the rest being made up of small businesses. It stands to reason that there is difficulty for such businesses to comply adequately with the taxation laws as they stand right now, thus leading to a perceived lack of transparency in the gems and jewellery market. A simplified tax code, GST will not only boost demand due to lower effect of cost push inflation and cheaper products, but it will also potentially allow for a more thorough examination of small jewellery stores’ accounts, thus boosting tax revenues, lowering commodity prices and allowing for higher margins, all in one swoop. 

Please follow our LinkedIn and Twitter pages to get live updates on market research insights and analysis.