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The share price of Gitanjali Gems, one of the world’s largest integrated jewellery sector players focused on the diamond business, has tanked 80 per cent in the past month. Mehul Choksi, chairman and managing director, attributes the fall to the recent decisions of the Reserve Bank of India (RBI) to restrict gold imports, which created panic among foreign institutional investors, resulting in their selling stocks in large quantities. In an interview with Dilip Kumar Jha, he says overall margins will move up this financial year. Edited excerpts:
Why this panic selling? Have Gitanjali’s fundamentals changed with RBI’s gold import restrictions?
At 23 per cent, foreign institutional investors’ (FIIs) holding (in Gitanjali) is the largest in any jewellery company in India. FIIs perceived RBI’s gold import restrictions to impact our company, because it’s a global player. However, in fact, our business in the US market has improved in the past few months, thanks to the revival in the overall US economy.
We have witnessed similar improvement elsewhere, including West Asia, Japan and even in Indian markets. While we admit to a decline in our gold business, whose share in overall profit is just five per cent, the loss from this segment will be overcome from the diamond sector, a high-margin business.
How are you navigating this situation?
It is true we will be impacted due to the gold import restrictions, but not to an extent as perceived by the market. Over the last two years, as part of our growth strategy, we had launched a number of gold jewellery collections. With the change in the government’s policy, we will focus on the core competency of diamond jewellery.
Gitanjali is a high-debt company. Will it affect your capital-raising programme for future growth?
As on FY13, our net debt stood at Rs 4,327 crore, against sales of Rs 16,418 crore. Our debt equity ratio has stayed at 1:1 in the last few years. Net debt and the Ebitda (earnings before interest, tax, depreciation and amortisation) ratio has improved from 6X to 4X in the past four years. Networking and sales ratio has improved from 60 per cent to 44 per cent in the past four years. Keeping in mind our next five years’ growth plan, we might raise capital to meet our growth aspirations.
How will you protect margins?
Although the gold jewellery constitutes 25-30 per cent of our top line, its contribution to profit margins stands at a negligible at five per cent. We expect the growth of the business to come from diamond jewellery, which has better margins and by improving our profitability on an overall basis.
What is the group business model and Gitanjali’s strategy?
We are into manufacturing, distribution and retailing of jewellery globally. We are one of the world’s largest manufacturers of precious jewellery having facilities at Mumbai, Hyderabad, Surat, Jaipur, Delhi, Kolkata, Coimbatore and in China. We are also one of the biggest retailers of jewellery worldwide, having over 4,000 points of sale.
What are the expansion and diversification plans?
Our growth will come from diamond jewellery sales, which have better value addition. Gitanjali plans to introduce lower categories of nine carat or 11 carat of gold and diamond jewellery in the Indian market. We also plan to increase our store presence in the US, Middle East, China and Japan, which have a positive outlook and have grown nearly 15 per cent in the past year. The international market, especially the US and Japan, have shown double-digit growth in the past six months and the trend is expected to continue.
What have so many brands under one house?
Indian jewellery consumers are diverse, based on region, categories, price points and occasions. The multi-brand portfolio of Gitanjali caters to this diverse requirement of Indian consumers and acts as an entry barrier for other competitors. We have already consolidated the businesses of all Indian brands under one roof - Gitanjali Brands (100 per cent subsidiary of Gitanjali Gems), the value of which can be unlocked for the benefit of all our stakeholders.
Prime Securities is blocked in Gitanjali shares. What is your take?
We learned from media that Prime Securities has pledged a lot of mid-cap shares and there were some regulatory issues with that. Understandably, Gitanjali is one of these.
What about media reports on the recent National Stock Exchange of India (NSE) order suspending your trading facility?
We have not received any communication from NSE. We will wait for the formal order, if any, and review our options.
Why this panic selling? Have Gitanjali’s fundamentals changed with RBI’s gold import restrictions?
At 23 per cent, foreign institutional investors’ (FIIs) holding (in Gitanjali) is the largest in any jewellery company in India. FIIs perceived RBI’s gold import restrictions to impact our company, because it’s a global player. However, in fact, our business in the US market has improved in the past few months, thanks to the revival in the overall US economy.
We have witnessed similar improvement elsewhere, including West Asia, Japan and even in Indian markets. While we admit to a decline in our gold business, whose share in overall profit is just five per cent, the loss from this segment will be overcome from the diamond sector, a high-margin business.
How are you navigating this situation?
It is true we will be impacted due to the gold import restrictions, but not to an extent as perceived by the market. Over the last two years, as part of our growth strategy, we had launched a number of gold jewellery collections. With the change in the government’s policy, we will focus on the core competency of diamond jewellery.
Gitanjali is a high-debt company. Will it affect your capital-raising programme for future growth?
As on FY13, our net debt stood at Rs 4,327 crore, against sales of Rs 16,418 crore. Our debt equity ratio has stayed at 1:1 in the last few years. Net debt and the Ebitda (earnings before interest, tax, depreciation and amortisation) ratio has improved from 6X to 4X in the past four years. Networking and sales ratio has improved from 60 per cent to 44 per cent in the past four years. Keeping in mind our next five years’ growth plan, we might raise capital to meet our growth aspirations.
How will you protect margins?
Although the gold jewellery constitutes 25-30 per cent of our top line, its contribution to profit margins stands at a negligible at five per cent. We expect the growth of the business to come from diamond jewellery, which has better margins and by improving our profitability on an overall basis.
What is the group business model and Gitanjali’s strategy?
We are into manufacturing, distribution and retailing of jewellery globally. We are one of the world’s largest manufacturers of precious jewellery having facilities at Mumbai, Hyderabad, Surat, Jaipur, Delhi, Kolkata, Coimbatore and in China. We are also one of the biggest retailers of jewellery worldwide, having over 4,000 points of sale.
What are the expansion and diversification plans?
Our growth will come from diamond jewellery sales, which have better value addition. Gitanjali plans to introduce lower categories of nine carat or 11 carat of gold and diamond jewellery in the Indian market. We also plan to increase our store presence in the US, Middle East, China and Japan, which have a positive outlook and have grown nearly 15 per cent in the past year. The international market, especially the US and Japan, have shown double-digit growth in the past six months and the trend is expected to continue.
What have so many brands under one house?
Indian jewellery consumers are diverse, based on region, categories, price points and occasions. The multi-brand portfolio of Gitanjali caters to this diverse requirement of Indian consumers and acts as an entry barrier for other competitors. We have already consolidated the businesses of all Indian brands under one roof - Gitanjali Brands (100 per cent subsidiary of Gitanjali Gems), the value of which can be unlocked for the benefit of all our stakeholders.
Prime Securities is blocked in Gitanjali shares. What is your take?
We learned from media that Prime Securities has pledged a lot of mid-cap shares and there were some regulatory issues with that. Understandably, Gitanjali is one of these.
What about media reports on the recent National Stock Exchange of India (NSE) order suspending your trading facility?
We have not received any communication from NSE. We will wait for the formal order, if any, and review our options.
