Margin thrust to follow topline jump

Branding and margin thrust to follow topline jump

Rajesh Exports, the country's largest jewellery exporter which claims to be the world's largest jewellery manufacturer, has the satisfaction of seeing the stake of FIIs like Goldman Sachs and Merrill Lynch in it being on an upward curve, from 8 per cent at March-end to 11 per cent presently.

If this is surprising as it ended last year on a low net margin of 1 per cent and clocked 1.4 per cent in first quarter 2005-06, that is because margins are also on an upward curve.

From being around 4 per cent in the early part of the decade, they dipped to 0.8 per cent in 2003-04 when their large facility at Whitefield near Bangalore came on stream and took turnover up over 13 times in a single year.

Having established volumes (in the present year Rajesh Exports is set to become a billion dollar company), it has turned its attention on margins. While maintaining a topline growth of 10-15 per cent, the company wishes to improve margins to 10 per cent in five years, according to chairman Rajesh Mehta.

For this it has laid out an elaborate strategy of going into branded jewellery and branded retailing. Right now its main thrust is export of unbranded jewellery for sale through large western retail chains.

Come October 2006, it will simultaneously open a hundred retail stores in south India which will be distinctively designed and branded. It will also unveil 10,000 new designs, making it the "largest global collection ever," says Mehta. These stores will offer both branded and unbranded jewellery.

It also plans to export its branded jewellery, first through wholesale channels and eventually one day through its own retail chain. It further plans to go into diamond-studded jewellery in which margins are much higher at 15-20 per cent.

Mehta attributes the success of the company to both being able to sell at "value for money prices" made possible through scale (it has 1,300 workers at a single facility) and use of innovative, streamlined, integrated processes which stretch from raw gold to finished ornaments - "the first in the world" - that ensure consistent quality and finish.

Over the next five years the company intends to have retail sales account for 70 per cent of its topline and 40 per cent of this coming from domestic sales. Right now 85 per cent of its revenue comes from exports.

As domestic retail sales mount the proportion of export earnings will come down to 60 per cent. Mehta is unfazed by prospects of a rising rupee ("I expect it to reach Rs 40 to the dollar in two years") as Rajesh Exports imports over 90 per cent of it requirements. Thus he considers his business to be truly global.

He also feels that the liberalisation process which began in 1991 requires some more fine tuning, like making the promise of putting gold imports on OGL a reality.

"Once these measures are taken, India can become the jewellers to the world as it already accounts for the largest demand and the largest number of skilled jewellery workers."