Jewellery firms are also gaining from rising prices and a better revenue mix.
Jewellery manufacturers and retailers have recorded a phenomenal growth in sales and profitability in the second quarter of the current financial year, due to a spurt in gold prices, margins and a recovery in demand. The markets, too, have been quick to reward these companies, given that a majority of these stocks have outperformed the BSE Sensex in the last few months. Analysts believe that demand is expected to remain good, led by a further recovery in consumption and re-stocking by trade.
Good September quarter
Eighteen companies of the industry posted an average 32 per cent increase in sales and a staggering over 61 per cent net profit increase in the second quarter ending September 30. A look at the numbers indicate that the top companies, which account for a large share of the sector’s market value, have seen their profits rise on a sequential basis.
At an individual level, companies have been taking measures to improve their efficiency. For instance, Gitanjali Gems, the second largest by market value, through better sourcing and technology, along with focus on the high-margin franchise model, is aiming to enhance its margins, analysts say. Gitanjali has also cut its expenses by 10 per cent at its US operations to make it profitable, which is adding to its margins.
Rising demand, prices
Overall jewellery demand from the developed countries, including the US and the EU, and developing countries like China, Taiwan, Turkey and West Asia has increased due to a recovery in the American economy. Although Ireland’s recessionary impact has hampered the economic recovery of the European Union, yet the demand for select mid-end jewellery in the region has increased, albeit marginally. Given that 60 per cent of the jewellery manufactured in the country is exported, it is not surprising that jewellery exports from India are up 41.6 per cent year-on-year to $21.4 billion in the first seven months.
Owing to retailers’ and consumers’ reluctance over holding on fresh spending in jewellery last year, the inventory almost dried up. This year, however, hopes revived for the upcoming festivals like Christmas, New Year and Mother’s Day, for which retailers have started building inventories. Retail consumers were also found aggressive in the US, which accounts for nearly 40 per cent of the global jewellery consumption and over 37 per cent of India's jewellery exports, especially in entry level items ranging $99-$199. As a consequence, jewellery demand in the US has risen nearly 30 per cent, said Rajiv Jain, chairman of the apex trade body the Gems & Jewellery Export Promotion Council.
The restocking demand as also supported by retail consumers' enthusiasm over their plans to own new jewellery is despite precious metals' price rise. Gold prices have sharply risen by 22.6 per cent year-on-year to Rs 19,150 per 10 gram as of September 30. Silver prices also recorded a growth of 28.5 per cent to Rs 33,935 per kg. In dollar terms, gold is up 29.8 per cent to $1,308.35 an oz while silver is up 30.7 per cent to $21.76 an oz during the same period.
Mehul Choksi, chairman of the Rs 6,000-crore Gitanjali Gems, which operates a chain of over 130 retail jewellery shops in the US, said, "We have witnessed 30-40 per cent growth in sales during the last quarter in the US alone, which indicates that the country's overall economic growth is reviving."
Jewellery demand has also increased in the domestic market by 40 per cent due to an overall growth in the economy and an increasing disposable income among the middle class, while retail margins have almost doubled year-on-year in the September quarter.
| GAINING MOMENTUM | ||||||
| Quarter ended Sep 2010 | Latest | |||||
| in Rs crore | Sales | % chg | PAT | % chg | PE (x) | Price (Rs ) |
| Rajesh Exports | 5,040 | 25.3 | 74 | 126.9 | 12.6 | 117 |
| Gitanjali Gems | 2,510 | 42.8 | 80 | 51.7 | 9.7 | 298 |
| Shree Ganesh Jewl. | 1,792 | 139.4 | 84 | 63.6 | 5.3 | 204 |
| Su-Raj Diamonds | 906 | 24.7 | 24 | 82.7 | 4.6 | 62 |
| Suashish Diamonds | 244 | -32.2 | 30 | 151.5 | 4.4 | 176 |
| Shrenuj & Co | 603 | 52.0 | 15 | 15.2 | 5.7 | 46 |
| Goenka Diamond | 152 | 6.2 | 4 | -68.0 | 8.2 | 85 |
| Thangamayil Jewel. | 174 | 42.5 | 9 | 73.7 | 10.3 | 170 |
| % change is year-on-year, Data compiled by Bs Research Bureau | ||||||
The road ahead
Despite the rise in precious metal prices, industry experts believe that demand will continue to remain healthy on the back of a recovery in economic growth in the US, and growing consumption in India as well as Asia. However, there could be some shift in preference. For instance, like in the recent past, consumers may opt for diamond-studded silver jewellery rather than gold jewellery, due to higher gold prices.
Among stocks, analysts say that there is a limited upside of about 10 per cent in Rajesh Exports, given the higher valuations. They prefer Gitanjali Gems due to its consumer focus business model (upside of about 15 per cent), Shree Ganesh Jewellery House (upside of 40-50 per cent), Shrenuj & Co (25-30 per cent) and Goenka Diamond (about 30 per cent).
