'We are the lowest cost jewellery makers'

SMART TALK/ Rajesh Mehta, chairman, Rajesh Exports

Rajesh Mehta

One of the leading exporters and manufacturers of jewellery, Rajesh Exports is now eyeing the retail market to cash in on the consumer boom. The company is setting up multiple brand chain of stores all over the country to sell branded jewellery.

In FY06 Rajesh Exports' sales saw a growth of 29 per cent to Rs 5,481.87 crore. Its net profit surged 54.46 per cent to Rs 66.55 crore.

At the current price of Rs 232.15, the stock is currently trading at 12.38 times its trailing twelve month earnings. The retail foray will make the company a fully integrated jewellery player. Rajesh Mehta, chairman, Rajesh Exports talks to Manasvi Mehta to throw light on the issue and the way ahead for Rajesh Exports. Excerpts:

Why are you entering the retail market given the fact that there are many branded players in the business?

We are establishing retail showrooms under the brand name Laabh Jewellers - The Complete Jeweller, with multiple representations in every Indian state. We are primarily entering the retail segment to leverage on our exceptionally strong backward integration strengths and to exploit our global gold jewellery leader status, which will increase our profitability manifold.

The target segment of Laabh is going to be the urban clientele. We are the largest gold jewellery manufacturer in the world at present, and we have the maximum integration in the field of gold jewellery. We have achieved scale and are the lowest cost gold jewellery producers in the world.

On a year to year basis, we are expecting a growth of 100 per cent for the next five years in the retail business.

How are you going to differentiate yourself from competition?

Most of the branded players in the jewellery segment are into branded diamond jewellery targeting the young generation with low value and non-investment oriented products, thereby focusing more on the fashion aspect of jewellery.

Moreover, these players are selling their brands through shop-in-shop counters without targeting the mainline Rs 90,000-crore jewellery market.

We are foraying into mainline retail jewellery segment targeting the core of the jewellery business, offering the latest fashion trends in the jewellery world. We would be able to differentiate ourselves due to our backward integration strengths.

We will offer an absolute guarantee of gold purity for our jewellery with lifetime buyback guarantee. We have leveraged our designing expertise and our knowledge of the domestic market to create an exclusive portfolio of 3,000 designs.

We have developed certain proprietary technologies that provide a better finish and look of the jewellery, which would not be possible to replicate. We are the lowest cost producer of jewellery in the world and intend to offer jewellery at unbeatable prices.

All the stores would be online and networked, thereby offering multiple choices to the consumers for exchange or return at various locations as well as fast processing of customer orders.

How has the roll-out been planned? Which is the target segment?

The retail foray would be a pan-India roll-out with about four stores opening every week in October and November. The initial roll-out would be a soft launch to allow time to the showrooms to steady themselves during the dry run period.

Once majority of the stores are launched, we will undertake a visibility campaign across the country to position Laabh as a complete jeweller and as the first choice of consumers across the nation. We have already launched fourteen Laabh stores.

Will the company set up shops abroad?

The company would definitely have a global presence to effectively leverage its strengths in the jewellery business. The international foray would be in near future either individually or with a JV partner, either with the existing brand or under a new brand name.

What is the expected cost for setting up the stores and how does the company propose to fund it?

In the first phase of our retail foray, we would be launching 30 stores in the month of October and November under the Laabh brand. The total estimated cost of this has been estimated at Rs 100 crore, which we propose to fund through internal accruals.

In the second phase, we would be setting up 100 retail stores under the brand of Shubh Jewellers by March-April. This range would be targeted at both, the urban and rural clientele. The project cost of the second phase has been estimated at Rs 350 crore which would be funded by debt and internal accruals. Margins of your company have been lower as compared to its peers. Do you think they will improve because of the retail foray?

Rajesh Exports is mainly a volume player manufacturing jewellery in bulk for large scale clients across the world. Due to our volume and wholesale nature of our manufacturing business, our margins are lower.

Retail is going to be a major margin driver for the company in the coming years. We expect a notable addition to our bottom line and top line due to the retail foray in the full financial year of 2007-08. We have targeted to achieve a net profitability of 10 per cent of within the next five years.

During these five years we expect our revenues to grow by about 15 per cent a year and profitability by 60 per cent per annum.

How have you benefited from the Oyzterbay acquisition?

We have immensely benefited, mainly in our retail foray. We have been able to access ready retail systems and procedures along with the readily available infrastructure of showrooms at prime locations and a large customer database.

The most important benefit from the acquisition is the team of the promoters of Oyzterbay. These are the same promoters who had promoted the first retail brand of watches and jewellery in the country and also were instrumental in creating the national appeal for the Oyzterbay brand.

These professionals who have joined the company would be immensely valuable for our aggressive retail foray.

What are the company's future plans?

Going forward our focus would be to emerge as a truly global jewellery destination with a global retail presence and a large scale branded global jewellery exporter. We want to establish a chain of retail stores across the world which would offer quality jewellery at unbeatable prices.

Based on our strengths and focus, we are absolutely confident of emerging a world business leader in the jewellery segment.

What are the perceived opportunities and threats in the future?

Bulk of the global jewellery market, including the Indian market, is in the unorganised sector. We have emerged as the largest organised jewellery manufacturers and distributors in the world.

We are confident that this status would present the company with immense opportunities both in the global and the Indian markets. We have prepared ourselves and are further building ourselves to seize these opportunities as and when they occur. We do not foresee any significant threats to our plans.