international diamond services ltd Management discussions

INTERNATIONAL DIAMOND SERVICES LIMITED ANNUAL REPORT 2007-2008 MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY STRUCTURE & DEVELOPMENT: The global gems and jewellery industry can be divided into the following sub sectors based on its characteristics and preciousness in terms of price range, marketability and processing techniques: Gemstones: Diamond and coloured gemstones (precious, semi-precious and synthetic). Jewellery; Plain gold, studded, silver and costume. The global gems and jewellery sector is worth about $ 150 bn. The key markets of gems and jewellery reported an increase at a CAGR of 5-10 per cent across the decade. The global industry is largely unorganized generally managed as family-owned business entities. Indias gem & jewelleij industry is a rising star of the Indian economy. The industry has performed extraordinarily well over the past few years and this growth trend is expected to continue in the years to come. Growing rapidly, this industry has exhibited remarkable energy and focus, registering an average growth of 25-30 percent year-on-year. Availability of skilled manpower , together with liberalized govt. policies catalysed continuous sectoral growth , making it a leading foreign exchange earner. The Indian gem and jewellery industry has beaten market expectations despite the difficult global market conditions and a seve. s pressure on margins. In 2007-08, it reported the following: 21.05 percent growth in exports of coloured gemstones in dollar terms and 19.09 percent in rupee terms. - 6.07 percent growth in export of cut and polished diamonds in dollar terms and 4.09 percent in rupee terms. - 6.32 percent growth in gem and jewellery exports in dollar terms and 4,35 percent in rupee terms. India is a leading producer of finished jewellery and polished stones. Gemstones and jewellery represents the most significant specialist segment of Indian retailing , accounting for a high proportion of total retail spend. According to the Gems and Jewellery Export Promotion Council, the total jewellery market in India is around USD 13 billion of which diamond jewellery makes up around 20%. The segment is dominated by very small family owned retailers and the total size of the market is difficult to measure. Indian households have traditionally relied on a family jeweller to provide a quality assurance. Consumer brand awareness is low. Most purchases take place at festival periods and to celebrate family rituals such as marriages and births. Now organized jewellery retailers are increasingly offering brand solutions to the demand for quality and value as consumers move away from traditional family retailers. OPPORTUNITIES & THREATS Global market is on the growth path. The Indian economy has been also registering growth of 8% to 9% leading to increased domestic consumption expenditure. The consumption expenditure is on the rise which is expected to further boost Indian exports. There are, therefore, good opportunities for the gems & jewellery business. Terrorist attacks, hardened rupee and increasing gold and diamond prices may pose a threat. The potential growth in manufacturing bases in China may effect the present dominant position of India. In respect of the domestic sale of gems and jewellery, vast opportunities are perceived on account of growth in Indian Economy and increase in number of middlcclass category persons as well as their buying power, Overflodding of foreign branded products and increase in price of gold may pose a threat to the industry. OUTLOOK As stated under Opportunities & Threats, the outlook for the gems & jewellery business is bright. SEGMENTWISE PERFORMANCE The exports made and the retail sales achieved during the year are as follow: 2007-08 2006-07 (Rs. In lakh) (Rs. In Lakh) Export Sales - - Domestic Sales 36.45 23.71 RISK AND CONCERN Apart from the normal business risks as generally apply to business organization, the company does not foresee any other serious area of concern, except the areas underlined under opportunities & threats. INTERNAL CONTROL SYSTEM AND ITS ADEQUACY The company has an effective internal control system in place and this is periodically reviewed for its effectiveness. Cross-functional internal checks mechanism has been created to ensure compliance of procedures. The teams constituted for this purpose cover review of business processes. The audit committee reviews the observations of these teams at regular intervals. FINANCIAL VIS-A-VIS OPERATIONAL PERFORMANCE The company incurred a net loss of about Rs.74,98 lakh during the year ended. Highlights for the financial year ended March 31, 2008 are as under: 2007-08 (Rs. In Lakh ) 2006-07 (Rs.In Lakh) Sales 36.45 23.712 Other Income 1.30 1.43 Profit/(Loss) before Tax (30.72) (86.27) Net Profit/(Loss) (30.49) (74.98) HUMAN RESOURCES Yours company is deeply concerned about the safety, welfare and training of employees. Employee / employer relations were cordial throughout the year. As at March 31, 2008, the total number of employees stood at 6.