Shreyas K Doshi, Chairman & Managing Director, Shrenuj & Company Limited

Speaking with Anil Mascarenhas of India Infoline, Shreyas Doshi says, "The recession was a golden period for Shrenuj."

November 09, 2009 4:11 IST | India Infoline News Service

Shreyas K Doshi, Chairman & Managing Director, Shrenuj & Company Limited, is a third generation industrialist in the gem and jewellery industry. Mr. Doshi has been active in this industry for the past 40 years. Developing a business started by his grandfather, Kalidas Sankalchand Doshi, Shreyas Doshi seized upon the new opportunities of earning foreign exchange for India by adopting aggressive export of diamonds and precious stones. Mr. Doshi introduced laser technology to the Indian diamond industry bringing in a revolutionary change in the productivity norms. He is responsible for pioneering the adoption of many new technologies in the industry. The flagship diamond and jewellery factory of Shrenuj in Mumbai is widely acclaimed as the international technological benchmark. A student of Modern School and of Elphinston College in Mumbai, Shreyas Doshi is active as a leader in the industry. Mr. Doshi was conferred with LIFETIME ACHIEVEMENT AWARD by the International Colorstone Association in 2003. He is also on the GIA League of Honor list. He is the Honorary Consul for Finland in Mumbai, developing the trade and tourism ties between Finland and India.

Shrenuj is a global diamond and jewellery group established in 1906. Its core business is the manufacture of rough diamonds into premium polished diamonds and subsequent distribution through downstream channels. The group is vertically integrated, with sizeable jewellery manufacturing operations, branding programmes and, most recently, its own retailing activities, with operations spanning across 14 countries, employing over 2000 employees. Shrenuj has launched many successful brands across the globe, including Valina, Caro74 (US), Amante88 (HK), Master Cut, Syntilla88(Australia), Arisia, Sveni, Bhavya (India and Middle East), Fiana (France) and Lume (Germany). The company is publicly listed and has exemplary corporate governance and management processes. It has sustained strong sales growth of 21% CAGR over the past six years, while sustaining strong profit performance

Speaking with Anil Mascarenhas of India Infoline, Shreyas Doshi says, "The recession was a golden period for Shrenuj."

What impact have you seen with the economic slowdown in most parts of the world?
Like all other industries, the diamond-jewelry industry too was affected. However,

the recession was a golden period for us as Shrenuj was able to set up shop in Botswana as DTC Botswana Sightholders. We replaced a sightholder that collapsed in the wake of the global credit crunch. This came as a strategic advantage to us on account of the recession.

We have been a DTC sight holder since 1982. DTC Botswana made an exception under extraordinary circumstances by adding us as a sight holder in the middle of the contract period. Shrenuj Botswana met the rigorous sight holder eligibility criteria required to be a DTC Botswana sight holder. We were separately been granted an operating license by the Government of Botswana.

Recession has also helped us gain market shares in existing markets. We have set up distribution hubs across the globe and these hubs were able to capture the demand locally. Now, with disposable income increasing again, purchases by first-time diamond buyers are on the rise. Diamond is not a commodity where buyers will choose the high-end diamonds in the early stage. This happens over a period of time. They graduate from multi-stones to solitaires over a period of time. In the recent times, the certification of diamonds by third parties has also spurred demand.

There have been concerns that despite certification, when a diamond is brought back to sell, the price offered is much lesser.
If the diamond is chipped somewhere or there is some damage while extraction, to that extent the price offered may be less. But as an asset class, the price of diamonds have been steadily moving up; though not at the same pace as gold. Under normal circumstances, the customer or the investor, would definitely get an appreciation if the diamond is held for a certain period of time. This is even more true for larger sizes of diamonds that can be classified in asset class. There are constraints in buying back of very small sized or un-certificated diamonds.

The accounting practices of the diamond industry have often been a reason for lesser investor interest. What is your view?
I would say other industries have more innovative ways of accounting while in the diamond industry, the incidents, which used to happened decades ago have reduced considerably. Most of the buying and selling is done in dollars so there is a huge accountability with the receipts. A few incidents should not be construed as a trade practice.

We, at Shrenuj, retained KPMG as advisors for our corporate restructuring about five years ago. Since then, we have merged all our global entities under the flagship Shrenuj & Company Limited and now operate under one ownership. Our endeavor to adhere to the best corporate standards is evident in our board composition of respected people, including Mr. Keki Mistry, Mr. S S Thakur, Mr. S N Talwar, amongst others. We are also audited each year by SGS for adhering to best practices principles of DTC.

How do you manage your forex fluctuations?
Our international trade for gems and jewellery is dollar denominated. Imports as well as export are both in dollars. So there is a natural hedge. Additionally, we hedge the local expenses. We have wiped out all MTM losses and currently have a net gain. Our net worth has also been restored. Last year, the movements were exceptional, but this year, we are expecting the volatility to subside.

With Gold prices moving higher, what impact does it have on your jewelry business?
It has augured well for us since we are only in studded jewellery segment. With the increase in gold prices and relatively stable diamond prices, the consumers shifted towards higher diamond content in their jewellery, maintaining same price points. There was a marked shift from plain gold jewellery to diamond studded jewellery, including many first time buyers. Diamonds are attracting more consumers based on the awareness that diamond prices will move upwards in the years to come as the demand-supply gap increases. This has led to a double-digit increase in demand for diamonds in India while America has witnessed some slackening.

You’ve been known for larger size diamonds. Is there a market in India for the same?
In India, there is huge demand for larger diamonds. In places like Delhi, some may prefer smaller size diamonds. However, in Kolkatta and even Mumbai, there is a trend favoring larger size diamonds. The demand for these diamonds has grown significantly over the past 10 years. Arisia, Sveni and Bhavya, our three solitaire brands with large diamonds have grown in double digits over the past 3-4 years.

How has your retail experience been? Why have you chosen only the shop-in-shop model and not shop-in-mall?
Our Shop-in-Shop approach is a strategy to enter the Indian retail market. This model requires lower capex as compared to high street shops or shop in mall. The other advantage is derived from the footfalls in the existing shops. Yet we have been able to create a unique differentiation amongst the clutter through opening India’s only exclusive platinum jewellery counters.

Our retail operation Diti is a chain of shop-in-shop outlets launched in 2007. We sell affordable luxury products in the mid-sized range between Rs8,000 to Rs50,000 to the upwardly mobile middle-class. We plan to grow or retail presence aggressively over the next three years, marking presence in 29 top Indian cities with over 150 points of sales.

How has your branding strategy evolved over the years?
Our branding is different for different markets. We engage customers through emotionally appealing marketing, which allow us to command a premium. We have, Caro74 and Valina in US, Fiana in France, Amante88 in Hong Kong and Master Cut and Syntilla in Australia.

We have the Trapz product line of fancy-shaped side stones, which are manufactured in Israel and India.

In India we have Arisia for the high-end customers followed by Sveni and Bhavya.

For our international distribution, we have a luxury brand Lume with a catch line ‘Touch The Stars.’ This brand has been developed by a German team and is positioned to attract modern independent women.

Tell us about your retail acquisitions and to what extent have you integrated the business?
We acquired a Hong Kong retailer Daily Jewellery in 2003, which was a discount jewellery chain. We took over and changed it into a contemporary and elegant shopping spot for the fashion-conscious women and rechristened it as Joliesse. From a discount store it is now regarded as a high-end fashion brand . We have 10 Joliesse stores in Hong Kong and two more will be opened shortly. We also plan to take this brand to China.

Tell us more about your capacity
Over the last few years, we have built up capacity in manufacturing as well as distribution. We are operating in single shifts and by merely changing to a double shift will double our throughput. Last July, we commissioned a 35,000 sq. ft jewelry unit. Capacity in jewelry is a million pieces per annum on a single shift basis. In diamond too we have built up enough capacities and there may be no capex required for the next five to six years. Here again, we can double capacity by operating two shifts. In diamond, our current utilization is ~80% while in jewelry, the utilisation is over 60%.

What are the opportunities you see for the industry?
The opportunities are untapped. India has a dismal share of the market in diamond jewelry globally. While we have over 90% share in diamond output, our share in jewellery segment is only about 3%. This is despite having the required skills and technology.

The retail business in diamond jewelry is increasing every year on a sustainable basis by 2-5%. It is currently US$70bn and is expected to increase to ~US73-75bn. We have set up our facilities and readied ourselves to reap all the benefits in the entire value chain. It’s only a matter of time before the economies pick up and businesses take off.

The current scenario regarding availability of raw materials indicates that prices for polished diamonds are set to move northward for long.

What then would be the challenges?
In the smaller sizes and certain grades, there is tremendous competition. Jewellers have no choice but to face the competition and emerge successful.

On the regulatory front, there is not much hassle as our regulators are well aware of the needs of the industry and have taken appropriate measures.

Tell us more about synthetic diamonds? What kind of threat do they pose?
The natural diamond is created in geological processes whereas a synthetic diamond is produced in a technological process. The production methods for synthetic diamonds are high-pressure high-temperature synthesis (HPHT) and chemical vapor deposition (CVD). DeBeers has the required patents in most places except USA to ensure that synthetic diamonds do not harm the trade. Moreover, synthetic diamonds finds their way more into industrial tools rather than jewelry. The technology to identify synthetics is already available.

Brief us on Your latest financials and outlook?
We have achieved 6% increase in our sales revenue (consolidated) in H1-FY10 to Rs7.22bn while the net profit registered a growth of 16.7% to Rs230.3mn up from Rs197.3mn (H1-FY09). EPS stood at Rs3.32 as against Rs2.85 in the corresponding period last year.

For the quarter ended September 30, 2009, we have posted a PAT of Rs129.7mn, recording an increase of 120% over corresponding period last year. Net Sales in the same period recorded an increase of 16 %, from Rs3.42bn to Rs3.96bn.

The results are remarkable in view of the sluggish growth in western markets and Far East. We are witnessing high growth in our operations in India and China. We are optimistic about the approaching Christmas season as well as the wedding season in India. I am happy that our order books are already full for entire season. Consumer interest in jewellery has been renewed worldwide, which augurs well for us.

You have been pioneers in introducing laser technology in diamond cutting in India. Has there been any innovation led by you in the recent years?
We have continued our innovative spirit alive over the past four decades. Very recently, we have introduced a new patented diamond setting in jewellery, called "Embrace" set. This setting solves the problem of falling or loose diamonds in traditional invisible setting. We have adapted equipment from aero-space technology to achieve this. As a result, we are providing a guarantee that the Embrace set diamonds will not fall even after rugged use for a minimum of 10 years!

We have adopted automatic cutting and polishing technology in our diamond manufacturing as well, adding to productivity and consistency.

What is your message for shareholders
Our company offers the perfect match of upstream operations aligning with downstream needs. Our vision is to achieve a turnover of US$1bn in the next five years. Our revenues in the coming years would increase from the downstream jewelry segment where our experience and capabilities will enhance the value of the products. We will live up to our vision of being the most profitable, highly integrated company with world quality leadership in all our products and services.

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