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Diamonds: Future bright for Indian jewellers

Arti Sharma | June 12, 2004

It was a perfect fit for the Rs 400-crore (Rs 4 billion) Shrenuj & Co. Nine months ago it acquired a Hong Kong retail chain Daily Jewellery, which runs eight stores in the prosperous territory.

It's looking at adding more stores in coming years and earning about 50 per cent of its revenues from retailing and selling its jewellery to foreign players.

Classic Diamonds India is also chalking out aggressive growth plans for the future but it's taking a different route to retailing. The Rs 600-crore (Rs 6 billion) company, recently acquired a controlling stake in one of its American customers Diamond Direct so that it can step up its jewellery export business.

"The potential to grow is huge and so is competition, we have to step up aggression and focus to capture the market," says Classic's 28-year-old director, Nirav Bhansali.

Shrenuj and Classic aren't the only diamond merchants who are pulling out all the stops and hoping to become players in the international diamond jewellery market. Some like Shrenuj and Classic are looking at acquisitions that will act as a beachhead on foreign shores.

Others are aggressively wooing customers, expanding manufacturing facilities and opening offices around the globe.

How many diamond merchants are eyeing the jewellery business? To understand what's happening take a quick trip to the Santacruz Electronics Export Processing Zone, special economic zone (SEEPZ) in suburban Mumbai, which accounts for 38 per cent of the country's exports of jewellery. Three years ago about 60 studded diamond jewellery manufacturers operated from the zone.

In the last one-year alone, 40 more have come up. And this growth is expected to continue. Says a senior SEZ official: "The diamond jewellery manufacturers are only waiting to grab space. If we offer them more space, it will be lapped up."

It isn't tough to understand why the key players of India's diamond industry are looking at the jewellery business. The fact is that they don't have another way to grow. Already 11 out of 12 diamonds around the world are cut, polished and processed by Indian units. India has a 95 per cent share in terms of pieces in the global production of cut and polished diamonds, as per the Gem and Jewellery Export Promotion Council.

Some manufacturers took a step forward in the mid-'90s and entered jewellery manufacturing. Says Sanjay Kothari, chairman of the GJEPC, "India has a definite cost advantage and our strength is diamonds today."

Now many of these players are looking at taking another step up the chain and they want a bigger chunk of the $93 billion jewellery market of which it is estimated that diamond jewellery accounts for roughly two-thirds at $60 billion.

Currently, Indian-made jewellery accounts for only $2.5 billion, of which 30 per cent comes from diamond jewellery. Says Shreyas Doshi, part of the third generation of the Doshi family and managing director, Shrenuj: "Jewellery is the future for this industry, if we want to grow and improve profitability."

But it is only in the last year that growth has taken off. Jewellery exports touched $2.5 billion this year compared to $1.5 billion in the previous year -- a growth of 66 per cent, compared to the 36 per cent growth between 2001-02 and 2002-03.

Profit margins are also higher in the competitive retail business. Selling cut and polished diamonds yields margins of just 5 per cent to 10 per cent but selling finished diamond jewellery pieces to wholesalers overseas yields margins of between 20 per cent to 40 per cent. And retailing overseas offers margins of between 40 per cent and 60 per cent depending on the value of the diamonds.

Also, Indian manufacturers have an added advantage since they process the diamonds themselves. Says Bhansali, "If I'm selling to major retail chains like Wal-Mart and JC Penny, I can be sure they will drive a hard bargain, competing on price is the only way to forge ahead."

So what are players doing exactly? Gem Plus Jewellery India, a 100 per cent export unit based in SEEPZ is a division of the Rs 3,000 crore (Rs 30 billion) Gitanjali group, which also owns the domestic retail brand Gilli. It first got into jewellery manufacturing for exports in the early nineties.

Today its turnover has grown to Rs 325 crore (Rs 3.25 billion) compared to Rs 160 crore (Rs 1.6 billion) three years back. In the last year and a half, the company has added 40,000 sq ft of additional space with a capital investment of Rs 10 crore (Rs 100 million) and has increased capacity by 60 per cent. Today, Gem Plus can manufacture 100,000 pieces a month.

Says Rajendra Chourse, chief operating officer, Gem Plus: "We have been growing very well, have added different distribution segments and new markets in the last year alone."

Last year, Gem Plus turned its attention to Japan and the Gulf region and added new sales offices and agents in three countries in addition to the five it already had. It sells to all the major retail chains in the US (like JC Penny, Wal-Mart and Fred Myers). It's also looking at the possibility of setting up factories in China and acquiring retail chains in other parts of the world. Its turnover target this year is Rs 450 crore (Rs 4.5 billion).

Today, Shrenuj, for instance gets 20 per cent of it's revenue from diamond jewellery compared to 2 per cent 10 years ago. Doshi, wants that at 50 per cent in five years time. It's also opening new outlets in Hong Kong and roping in ad agency Quadra for a brand building effort. It has also set up a third unit in SEEPZ, which will be operational by this July.

Bhansali's plans for Classic include more acquisitions and tie-ups. Currently jewellery accounts for Rs 100 crore (Rs 1 billion) of turnover compared to Rs 40 crore (Rs 400 million) three years back. This year, apart from expanding in the US market, Bhansali is also eyeing joint ventures with three European companies.

"Formalising the already existing relationships helps us to be more focused, the retailer knows who the supplier is and we can contain costs," says Bhansali. He also plans to set up three or four outlets in Hong Kong with an average spend of Rs 7 crore (Rs 70 million) per outlet (including the stock) over the next four or five years.

Like many others Bhansali and Doshi are eyeing China and they hope to use the Hong Kong route to the mainland.

Classic has also doubled production capacity from the current 11,000 sq ft, which will take the daily production from 800 pieces a day to 1,500 pieces a day. Bhansali plans to reach his $50 million goal by 2007.

It's not just the larger players that are betting big on growth in the jewellery business. Players like the Rs 180 crore (Rs 1.8 billion) Fine Jewellery have also acquired an additional 40,000 sq ft of space in SEEPZ, which will be operational in three months. And the target is to go to all the major retail chains this year.

But there are challenges ahead. One, is the lack of skilled manpower and technology to create and produce designs for the international markets. The council is hoping to tackle this by setting up a training institute. Also, Indian firms will have to tightly control costs and prices.

The key Indian players are hoping they will be able to dominate the diamond jewellery market as they do the cut and polished diamond market. Whether the industry can sustain the 50 per cent plus growth in the coming years is the question.

Says an industry observer: "The cut and polished diamond industry grew rapidly. If we put our minds to it and channelise resources in a focused manner, that goal is entirely possible."

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