Titan’s move to float a commodity trading arm driven by its quest to be ‘independent’

Sangeetha Chengappa Bengaluru | Updated on August 12, 2020

Subbu Subramanian, CFO, Titan Company

The quantity of gold that it needs to hedge has also shot up dramatically

Titan Company’s decision to incorporate a commodity trading arm, which has created a buzz, was driven by the company’s quest to snap its reliance on a stock broking firm against whom strictures were passed by SEBI last November, a top executive told BusinessLine on Wednesday.

“After the issues concerning a brokerage firm we were dealing with, we became very wary. We then started hedging with some other brokerage firm. This means that we are restricted in terms of our brokers, since we are not a broker ourselves. It is interesting that while 80-85 per cent of our business is jewellery, the regulations don’t allow us or any company that has business other than a jewellery to be a broker. So, we are the biggest in the game and yet we can’t hedge ourselves.

“The only option left to us was to have a commodity trading subsidiary, which is only in the business of gold and gold hedging,” said Subbu Subramanian, CFO, Titan Company.

“We are not dealing with a third party and are not exposed to counterparty risks any more. Second, we will actually make money because it is in-house and we don’t have to pay brokerage fees,” he added.

Another reason why Titan chose to set up the subsidiary was that the quantity of gold that it needs to hedge has gone up substantially. “We have been hedging gold from the time we started our business. In the past, we used to have more of gold on loan, which was a natural hedge and our reliance on commodity exchanges was much lower — 15-20 per cent of our gold used to be hedged on the exchanges. We used to do about 15 tonnes of gold 6-7 years back. Now, it is almost double. That’s happened because we are buying more and more gold on exchange from our customers by promoting our exchange programmes.

“What that has done is more than 50 per cent of the gold that we are buying today is on exchange (customers’ old jewellery) which used to be 20-25 per cent 4-5 years back. Therefore, the quantity of gold that we need to hedge itself has gone up,” he said.

Asked if silver and platinum will also be hedged, he said, “It will be only gold, because we deal very little with silver. We don’t do too much of platinum and it’s also not easy to hedge platinum in the market.”

Published on August 12, 2020

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