Mr. Siddharth Mehta, Chief Strategist, Rajesh Exports Limited is a dynamic young professional working with the Company for the past four years. He handles key communications and branding portfolio at Rajesh Exports Limited which includes branding, advertising, investor relations and public relations. He is also actively involved in the day-to-day operations of the Company. He has completed his BBM from the Centre for Management Studies, Bangalore. He is an ardent follower of cricket and a good player of the sport himself.
Rajesh Exports Limited was established in the year 1990 as a gold jewellery manufacturing company. With its undivided focus and expertise, the Company has grown to be the largest gold jewellery manufacturing company in the world. The Company has setup the world’s largest gold jewellery manufacturing facility at WhiteField, Bangalore. It has a capacity to process 250 tons of gold into the world’s finest jewellery. The Company is also the lowest cost gold jewellery manufacturing company in the world. With its retail initiative, under the brand name of "Shubh Jewellers", Rajesh Exports Ltd. has emerged as the largest retail jeweller in the south Indian state of Karnataka, and the only fully integrated gold jewellery company in the world.
In an exclusive interview with Hemant P. Maradia of IIFL, Mr. Siddharth Mehta says, “The Budget measures would encourage smuggling, black market and parallel economy for gold in the country.”
What is your reaction to the proposals announced on gold in Union Budget?
In the Union Budget, the customs duty on Gold bars (not less than 99% fineness) has been increased from 2% to 4% on the value of import. Apart from the increase in duty on gold, unbranded gold jewellery has also been covered under central excise of 1%. In addition, the Finance Minister has proposed a tax deduction at source for cash purchase of jewellery above Rs. 2 lacs. The increase in customs duty and excise duty would mean an increase of about Rs 825 per 10 grams on the current prices of gold.
All these steps have been initiated primarily to dissuade the Indian customer from buying gold to reduce the import bill. The measures initiated would not help in dissuading the Indian consumer from buying gold and gold jewellery.
In fact, the Budget measures could only end up increasing the price of gold and gold jewellery in India. That would further encourage people to buy more gold for investment. Therefore, the intention of the Government to reduce gold consumption in the country would be defeated.
Apart from further burdening the retail consumer of gold, who is already reeling under high prices, the Budget measures would encourage smuggling, black market and parallel economy. These would be a major deterrent to the organized, tax paying and law abiding entities like us.
After great difficulty, the major part of gold and gold jewellery industry had returned to the organized business during the last few years. Smuggling, parallel economy and black market economy for gold were unheard of due to the reduced import duty structure.
With these steps we are retuning back to the old days of high duty on gold. This is not a welcome move for the industry and the economy.
We hereby appeal to the honorable Finance Minister to roll back the increase in duty on gold imports and exempt unbranded gold jewellery from central excise duty, failing which the organized jewellery industry would suffer heavily and hundreds of thousands of artisans would loose organized employment.
Rather than increasing the customs duty and excise duty, the Government should have adopted more feasible and practical methods for reducing the import bill of gold.
The other way to reduce the import bill of gold is to encourage the Indian entrepreneurs to explore gold deposits in India and also set up ventures abroad in other gold producing countries.
The Budget could have also encouraged exploration and mining of gold in India and in other countries. China has very successfully done this and has emerged as the largest producer of gold in the world.
Briefly take us through your Q3 FY12 results? What led to the 26% jump in revenues and 50% spurt in PAT?
Revenue for the quarter ended December 31, 2011 stood at Rs 65,182.32mn compared to Rs 51,758.72mn during the corresponding period of last year, up 26% year on year.
The growth in revenues was due to the growth of export business and the retail business of the company.
The net Profit After Tax (PAT) for the quarter ended December 31, 2011 stood at Rs 1,147.65mn, as compared to Rs 761.20mn in the comparable quarter of 2010, up 50.76%.
The increase was primarily due to growth in profit from the retail operations.
The Earnings Per Share (EPS) for Q3 FY12 stood at Rs 3.89 compared to Rs 2.63 for the same period a year ago, registering an increase of 47.90%.
The order book position as on December 31, 2011 was Rs 49120mn. These orders are to be completed within March 31, 2012.
How did your ‘Shubh Jewellers’ retail stores perform in Q3? What is the contribution of the retail business in total sales?
The company continued to consolidate its position with its retail initiative under the brand name of “SHUBH Jewellers”. We now have 75 retail stores; 70 of these are in Karnataka.
Along with the exports business, the retail business also emerged as a key driver of profitability during the latest quarter.
Retail segment contributed revenues of Rs 4bn during Q3 FY12. We are able to garner higher margins in the retail business. Retail margins are ~5-7%.
We have also been able to improve our margins in the exports business. Earlier it used to be 1-1.5%. Now we have increased the same to 1.5-2%.
What about the diamond jewellery business?
We are not keen to grow the diamond side of business as we would like to expand the gold jewellery business through the SHUBH Jewellers retail stores. We are improving and expanding out existing jewellery range.
How much was exports during Q3 FY12? Which overseas markets drove exports performance?
Exports during Q3 FY12 stood at Rs 60.82bn. We predominantly export gold jewellery to UAE. We also have presence in Australia, USA and Canada.
We want to stabilise exports at this level and try to improve the margins. We want to boost our retail business in a big way.
How many ‘Shubh Jewellers’ stores do you plan to add over the next 2-3 years?
We are planning to have ~125 stores in the next four to five months. The 50 new stores will be added in Karnataka. With that, we will end our expansion in Karnataka.
We want to enter Andhra Pradesh and Tamil Nadu markets soon. By FY14, we aim to have 550 stores across South India. We will do it state-by-state.
In Andhra Pradesh we aim to set up 175 stores. We have set a timeline of around one year for the same.
The company plans to open 500 SHUBH Jewellery showrooms by the year 2014. Currently the company has 75 SHUBH Jewellers, retail showrooms.
What impact did the increase in import duty on gold have on jewellery sales?
No, we did not see any impact from the increase in import duty on gold. It did not make much of difference to us in terms of consumer demand. Not many people were put off by the increase, which translated into ~1% only.
We have increased our prices.
What is your USP? How do you differentiate your products from competition?
Jewellery demand is determined by design, purity and price. We have our own manufacturing facilities and thus control the entire value chain. In purity also we reckon we are one of the best in business.
Each of our jewellery products is certified for purity by the Government. We are the only integrated player in this business. We have our own refinery, our own manufacturing units and our own domestic network. We are also one of the cheapest.
How do you see the Indian gold and diamond jewellery market evolving?
This year the gold jewellery market in India is estimated to be ~960 tons. It may not grow substantially but it will expand gradually. The major factor is that 90% of gold trade in India is unorganised. So, there is a huge scope for organised gold jewellery players. We are contributing 10-15% of the organised trade and 0.4% of the total trade. Slowly but surely, the unorganised players will move out of business. Organised players like us and Tanishq will prosper.
The Indian market for gold jewellery is estimated to be Rs 2,70,000 crores.
What are your expectations or wish list from the Union Budget?
We have asked the Government to make gold free of import duty because that is in the interest of everyone. The gold jewellery association has sent a letter to this effect to the Centre. But, let us see as the Government policies are always unpredictable.
If you back to 1990s, there was this Gold Control Act. That actually led to a lot of smuggling of gold. Those malpractices also reduced once the import duty on gold came down. So, if the import duty on gold is hiked further, smuggling of the yellow metal might come back.
What are going to be the main challenges for your business going forward?
No. 1 is currency fluctuations and global uncertainty. Also, gold prices have been going up for the past several years and people think they will keep moving higher.
The main challenge is inflation i.e. nobody is able to tell where gold prices are headed. But, we being completely hedged company do not see any impact on us. Our export base is really strong. We also have a very large retail presence. So, we feel we can overcome fluctuations in gold prices better.