D.P. Abhushan Ltd Management Discussions

GLOBAL ECONOMY REVIEW

As we navigate through 2024, the global economy presents a landscape of stabilisation following several years of overlapping negative shocks, yet remains tempered by historical standards. The global economy was resilient in 2023 in spite of tightening financial conditions engendered by restrictive monetary policy stances, geopolitical tensions and geo-economics fragmentation. Growth in employment and incomes has held steady as favourable demand and supply developments have supported major economies, despite rising central bank interest rates aimed at restoring price stability.

In several large developed and developing countries, economic growth has exceeded expectations, with strong labour markets bolstering consumer spending. Concurrently, global inflation has declined significantly due to lower energy and food prices, allowing central banks to slow or pause interest rate hikes. Domestic demand is projected to improve in many emerging market and developing economies (EMDEs) this year, aligning with a moderate cyclical recovery from the effects of high inflation, tight financial conditions, and robust industrial activity. However, this veneer of resilience masks both short-term risks and structural vulnerabilities. Underlying price pressures remain elevated in many countries. A further escalation of conflicts in the Middle East poses the risk of disrupting energy markets and renewing inflationary pressures worldwide. Given the ongoing inflationary pressures, central banks in both advanced economies and EMDEs will likely remain cautious in easing monetary policy.

Global headline inflation is expected to fall from an annual average of 6.8 % in 2023 to 5.9 % in 2024, and further to 4.5 % in 2025, driven down by restrictive monetary policy settings, lower energy prices, and the continued easing of supply chain pressures. Food price inflation has also declined sharply in most countries, as good harvests for key crops such as wheat and corn have led to a rapid fall in prices from the highs reached after the start of the war in Ukraine. While core goods price inflation has generally fallen steadily, services price inflation has been more persistent, remaining well above pre-pandemic averages in most countries. A more pronounced decline is expected for advanced economies, with inflation falling by 2.0 %age points in 2024, whereas the decline in EMDEs is anticipated only in 2025. Inflation in personal care and effects edged up marginally to 7.8 % in 2023-24 from 7.6 % a year earlier, primarily driven by higher gold prices due to international price movements caused by war-induced safe-haven demand. Gold imports, at $ 45.5 billion during 2023-24, rose by 30.1 % year-on-year, underpinned by an increase in volume (17.2 %) as well as prices.

Global growth, estimated at 3.2 % in 2023 and supported by buoyancy in the US and major EMDEs, is projected to continue at the same pace in 2024 and 2025. A significant part of the decline and slowdown stems from increased misallocation of capital and labour within sectors and countries. Facilitating faster and more efficient resource allocation can help boost growth. Nevertheless, the projection for global growth in 2024 and 2025 is below the historical annual average of 3.8 % from 2000 to 2019, reflecting restrictive monetary policies, the withdrawal of fiscal support, and low underlying productivity growth. Advanced economies are expected to see a slight rise in growth, mainly reflecting a recovery in the euro area from low growth in 2023, whereas EMDEs are expected to experience stable growth through 2024 and 2025, with regional differences.

INDIAN ECONOMY REVIEW

As we approach 2024, the economic landscape of India remains robust and exhibits a consistent growth trajectory. Forecasts suggest that by 2027, India is poised to become the worlds third-largest economy, with its GDP surpassing the $5 trillion mark. There is an anticipated positive momentum in various sectors, including services and manufacturing, with particular emphasis on education, healthcare, information technology, and industries benefiting from the Production Linked Incentive (PLI) scheme. These sectors are collectively expected to contribute positively to the gems & jewellery market. The Indian rupees relative stability against the US dollar and other major currencies, along with substantial foreign exchange reserves, further strengthens the positive outlook for Indias economic expansion. The National Statistics Office (NSO) has reported that Indias retail inflation rate decreased to 5.09 % in February 2024, marking the lowest point in the past four months. This represents a marginal decline from January 2024, when the inflation rate was 5.10 %. As of April 2024, the retail inflation has further softened to 4.83 %, staying within the Reserve Bank of Indias (RBI) acceptable range of 2 to 6 %.

Amidst global uncertainty, the Indian economy demonstrated remarkable resilience during 2023-24, with real GDP growth accelerating to 8.2% from 7.0% in the previous fiscal year. This improvement was supported by robust fixed investment, spurred by the governments emphasis on capital expenditure. Urban demand, fuelled by rising income levels and increasing affluence, has been a key driver of consumption.

Despite facing unfavourable weather conditions, the agriculture sector experienced heightened activity and is expected to bolster rural demand. India has seen a surge across multiple economic indicators, indicative of robust and resilient business activity. Strong domestic demand, a revival in rural demand, robust investment, and sustained manufacturing momentum have all played a role in fortifying Indias economic resilience. Consequently, India has solidified its position as a significant economic and geopolitical force.

The Indian government has effectively developed policies and programs that enhance citizens financial stability while contributing to the overall economic growth. Over recent decades, Indias rapid economic expansion has significantly increased its demand for exports. Furthermore, several of the governments flagship initiatives, such as Make in India, Start-up India, Digital India, the Smart City Mission, and the Atal Mission for Rejuvenation and Urban Transformation, are designed to create vast opportunities within the country.

Indias allure as an investment destination has become stronger and more enduring. Foreign Portfolio Investment (FPI) flows experienced a notable reversal in FY2023-24. Buoyed by rising economic growth, an attractive business climate, and solid macroeconomic fundamentals, India attracted robust FPI inflows during the fiscal year. Net FPI inflows reached $ 41 billion in FY2023-24, a stark contrast to the net outflows witnessed in the preceding two years.

Gold prices in India maintained its sheen during the financial year 2023-2024 driven by escalating geopolitical crises worldwide. Volatility in the yellow metal prices also remained high led by slowing growth in advanced economies and monetary tightening by global central banks amid high inflation. Although gold consumer demand has been weak, with jewellers attempting to reduce inventory, Indian gold jewellery demand is likely to remain subdued unless there is a significant decrease in price levels. In contrast, investment demand for gold is expected to gain momentum, supported by optimistic domestic economic growth forecasts and the trend of increasing domestic investment inflows amidst ongoing global geopolitical and economic uncertainty.

GEMS & JEWELLERY INDUSTRY OVERVIEW

Embarking on the year 2024, the landscape of the gold and jewellery sector shines with potential, mirroring a dynamic blend of age-old customs and cutting-edge trends. Increasing disposable income and innovative jewellery designs offered by manufacturers are expected to drive product demand. Changing consumer behaviour related to fashion accessories and increasing demand by consumers for single-stoned stud earrings, pendants, and rings for styling and status symbols is one of the major drivers fuelling the global market growth. In almost every culture around the world, wearing gems and jewellery is considered a symbol of wealth and social status. The demand for gold chains and necklaces is, however, not limited only to weddings and functions. Platinum and Gold wear rings, delicate gold chains, bracelets, and anklets are used as fashion accessories on a daily basis. These are also gifted on various occasions such as birthdays and anniversaries. This evolving consumption behaviour is expected to positively impact market growth.

GLOBAL JEWELLERY MARKET

The global jewellery market size was valued at $ 353.26 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 4.7% from 2024 to 2030. An increasingly complex geopolitical and financial environment is making gold reserves management more relevant than ever. In 2023, central banks added 1,037 tonnes of gold the second highest annual purchase in history following a record high of 1,082 tonnes in 2022 as per World Gold Council reserves survey. Gold prices have risen due to robust demand from EMDE central banks, particularly China, India, and Turkiye, and a surge in Chinese ETFs, driven by geopolitical uncertainties. Chinas central bank has notably made record gold purchases for 17 consecutive months as of March 2024.

Gold is intrinsic to Indian culture, closely tied to religious beliefs, tradition, and festivals. Bridal jewellery dominates the gold jewellery landscape, enjoying 50-55% of market share; weddings, together with festivals, constitute the two major gold purchase occasions in India. India is the second largest gold jewellery consumer in the world and Indias gold demand gold is expected to reach 800 - 900 tonnes in 2024. India is a leading exporter of gold jewellery, with the United States recently overtaking the UAE as its primary export market. In FY24, the exports of gold jewellery stood at $ 26.35 billion whereas the imports of gold jewellery stood at $ 17.85 billion. India has 10 special economic zones (SEZ) for gems & jewellery. These zones have more than 500 manufacturing units, which contribute 30% to the countrys total exports. The Revised SEZ Act is also expected to boost gems and jewellery exports.

INDIAN JEWELLERY MARKET

India jewellery market accounted for the share of 24.21% of the global jewellery market in 2023. The India jewellery market size was estimated at $ 85.52 billion in 2023 and is expected to grow at a CAGR of 5.7% from 2024 to 2030. The Indian gems and jewellery industry is on an upward trajectory, merging traditional craftsmanship with modern innovation. With increased disposable income and evolving tastes, the sector is thriving, especially during cultural celebrations.

Government initiatives and the CEPA with the UAE are enhancing investment and export prospects. Key players are adopting new strategies, focusing on contemporary designs and ethical sourcing, while exploring e- commerce to extend their reach. In the ever-evolving world of jewellery, lab-grown diamonds have been making significant waves, offering consumers ethical and sustainable alternatives to traditionally mined diamonds. As we step into 2024, these man-made gems continue to gain momentum, with innovative designs and growing consumer interest shaping the latest trends in lab-grown diamond jewellery.

REGULATORY ENVIRONMENT

FDI Regulations

The government has allowed a 100% foreign direct investment in the Gems and Jewellery (G&J) sector through the automatic route, where neither the foreign investor nor the Indian company needs prior approval from the Reserve Bank or the Government of India. Total FDI Equity inflows in the Indian G&J Sector grew by around 15% to $ 25.50 million during 2022-2023 in comparison to FY22 and Total FDI Equity Inflows in Indian G&J Sector in India in April -September 2023 increased significantly by (-) 262.4% to $ 24.79 million as compared to $ 6.84 million recorded in April -September 2022. The impact of this FDI policy in the Jewellery sector is substantial, reflecting the sectors integral role in Indias economy. Contributing to 7% of the GDP and accounting for 10-12% of the nations total merchandise exports, this sector is a major economic powerhouse. Notably, it serves as the second-largest contributor to Foreign Exchange Earnings (FEE) in the Indian economy.

HALL MARKING SCHEME

The Hallmarking scheme in India, introduced by the Bureau of Indian Standards (BIS), regulates, and authenticates gold jewellery to ensure its quality and purity. The scheme started in 2000 and provides consumers with confidence in their jewellery purchases.

KEY UPDATES AND PHASES OF THE SCHEME INCLUDE:

• First Phase (June 23, 2021): Mandatory hallmarking was implemented in 256 districts across India.

• Second Phase (April 4, 2022): The scheme expanded to include an additional 32 districts.

• Introduction of HUID (July 1, 2021): A 6-digit Hallmark Unique Identification number was introduced for each article of jewellery, enhancing transparency and authenticity.

• Third Phase (September 8, 2023): The latest amendment extended mandatory hallmarking to 55 new districts, bringing the total to 343 districts covered by the scheme.

Under the Hallmarking scheme, registered jewellers are entrusted with the task of selling hallmarked Jewellery, working in tandem with recognized testing and hallmarking centres. These regulations, in place since June 14, 2018, are designed to empower consumers, enabling them to make informed choices when purchasing gold and sparing them from unnecessary confusion. This scheme plays a vital role in safeguarding the interest of jewellery buyers while upholding the integrity of the industry.

GOLD MONETISATION SCHEME

The Gold Monetisation Scheme, launched in November 2015 in India, aimed to mobilise the gold held by individuals, trusts, and mutual funds by allowing them to deposit their gold with banks and earn interest, replacing the Gold Deposit Scheme of 1999. Depositors could earn an annual interest rate of 2.25% for shortterm deposits (1-3 years) and 2.5% for medium and long-term deposits.

The schemes objectives were to reduce gold imports by utilising domestic gold reserves, support the gold and jewellery sectors with gold-based loans, and issue certificates to depositors indicating the quantity and purity of their deposited gold.

In January 2019, the Reserve Bank of India expanded the scheme to include charitable institutions and government entities. A revamped version aimed to tap into the estimated 22,000 tonnes of idle gold in Indian households by lowering the minimum deposit to 10 grams, involving jewellers, and ensuring the participation of all state-run banks. The revamp sought to simplify the process of opening gold deposit accounts and make it more accessible, thereby leveraging the untapped gold resources in the country.

SOVEREIGN GOLD BOND SCHEME 2023-24

The Government of India, in partnership with the Reserve Bank of India, plans to issue Sovereign Gold Bonds (SGBs) in multiple tranches during the fiscal year 2023-24. The SGB scheme, which began in November 2015 as part of the Gold Monetisation Scheme, offers an alternative to owning physical gold by allowing investors to hold gold in a paper or electronic form.

The main goal of the SGB scheme is to reduce the demand for physical gold, such as bars, coins, and jewellery, and to encourage investors to redirect their savings into financial instruments. By doing so, the scheme aims to transform a portion of the domestic savings that are usually invested in physical gold into financial savings.

The introduction of SGBs is expected to change the investment habits of individuals and institutions, steering them towards a more secure and financially prudent form of gold investment. This initiative not only promotes financial savings but also provides a safer and more convenient option for gold ownership.

PREVENTION OF MONEY LAUNDERING ACT (PMLA)

The Prevention of Money Laundering Act (PMLA) of 2002 was enacted to tackle the issue of money laundering, which involves making illegally obtained funds appear legitimate. The law authorises the government or designated authorities to confiscate properties that are financed by illicit money.

In accordance with this act, the central government has mandated that gold merchants keep records of transactions that exceed the value of 10 lakhs for a period of five years.

DUTY DRAWBACK SCHEME

The Duty Drawback Scheme is a program that enables exporters to obtain gold or inputs without paying duty charges. To participate, exporters must secure a one-time certificate from customs authorities and have membership certificates from bodies like the Gem and Jewellery Export Promotion Council (GJEPC). Once certified, they can acquire duty-free gold from nominated agencies and must export the gold within 90 days and receive payments within 120 days, providing documentation such as Customs Invoice Bill, Shipping Bill, and Bank Realization Certificate.

Exporters can claim a duty drawback, a refund for gold intended for export, indicated on a designated shipping bill. The scheme offers two options for exporters:

• Outright Purchase: Exporters can buy gold or silver for jewellery exports by making a full payment.

• Metal Loan: Exporters can take a duty-free gold loan for jewellery exports, backed by a Bank Guarantee or Cash Margin of 110% of the golds notional value.

RECENT DEVELOPMENTS

The Indian government has introduced new restrictions on the import of certain gold jewellery and articles to limit the entry of non-essential items. Importers now require government permission or a license to import specific gold items. The Directorate General of Foreign Trade (DGFT) has reclassified these items from "Free" to "Restricted" in the import policy, as per a notification dated July 12, 2023.

The regulation affects gold under HS code 71131911 (unstudded gold), which now faces import restrictions, except for importers with a valid Tariff Rate Quota under the India-UAE Comprehensive Economic Partnership Agreement (CEPA), who are exempt from this requirement. Other HS codes, 71131919 and 71141910, related to various gold forms and articles, are also now "Restricted."

This policy change, effective immediately, addresses the issue of importers using a loophole to import plain gold jewellery from Indonesia tax-free.

GOVERNMENT INITIATIVES

In the FY 2023-24 Budget, the Indian Government has removed Customs duties on the import of seeds used for producing synthetic diamonds, aiming to boost the domestic creation and international trade of lab-grown diamonds. This decision reflects the rising global interest in these diamonds due to their ethical production and environmental advantages, as well as their potential to satisfy the growing market demand.

Additionally, the government has raised the Customs duty on precious metal articles, including gold, silver, and platinum, from 20% to 25% starting February 2023 within the Gems and Jewellery sector. The import duty on Silver and Silver dore has also been increased from 7.5% and 6.1% to 10% for both categories.

As per a DGFT notification from December 26, 2002, the export or import of rough diamonds is now conditional upon the inclusion of a Kimberley Process certificate, as per the procedures set by the Gem and Jewellery Export Promotion Council. This requirement is part of efforts to enhance the transparency and regulation of the diamond supply chain to prevent the trade of conflict diamonds that finance insurgencies against recognized governments.

The RBI has brought 100 metric tonnes of gold reserve from the UK to India. The countrys overall gold holding increased by 27.46 metric tonnes in FY24, and it stands at 822 metric tonnes, as per official data. The movement of 100 metric tonnes into India has taken the overall quantity stored locally to over 408 metric tonnes of gold, which means the local and foreign holding is now split almost evenly.

As per the annual report of the Central Bank for FY24 released last month, over 308 metric tonnes of gold are held in India as backing for notes issued, while another 100.28 tonnes is held locally as an asset of the banking department. Of the overall gold reserves, 413.79 metric tonnes are held abroad. The RBI is strategically increasing gold reserves as part of its forex diversification efforts and hedging against foreign currency risk.

OUTLOOK

In FY24, D.P Jewellers has demonstrated commendable performance and is on track to secure a significant market share in both jewellery manufacturing and marketing sectors. The companys prospects are bright, with an anticipated growth trajectory that is expected to outpace both inflation and the industry average.

The future of the Gems and Jewellery Industry is projected to be positive, with growth rates ranging from moderate to strong, contingent upon governmental policies. The industry is poised for robust expansion in the forthcoming years, signalling a vibrant period ahead for D.P Jewellers.

It is important to note that the Gems and Jewellery Industrys growth is intricately linked to the health of other economic sectors. As such, shifts and advancements in these sectors could indirectly influence the trajectory of the jewellery industry. D.P Jewellers remains attentive to these external factors, ensuring agility and adaptability in its strategic planning to maintain its upward growth and continue its legacy of excellence.

OPPORTUNITIES AND THREATS

Opportunities:

Surging Market Demand: India has emerged as a global leader in the export of cut and polished diamonds, as well as lab-grown diamonds, ranking first worldwide in 2021. Additionally, the country holds a strong position in gold and silver jewellery exports, being the fourth and second largest exporter, respectively.

Rising Investment Inflows: The gems and jewellery sector has witnessed significant foreign direct investment, reflecting investor confidence in the industrys growth potential.

Governmental Incentives: The sector benefits from 100% FDI permitted through the automatic route, coupled with favourable government policies such as reduced customs duty on cut and polished diamonds, coloured gemstones, and exemptions on certain items.

Lucrative Market Potential: India is the second largest gold jewellery consumer in the world and Indias gold demand is expected to reach 800 - 900 tonnes in 2024. India is a leading exporter of gold jewellery, with the United States recently overtaking the UAE as its primary export market.

Threats:

Climatic Vulnerabilities: The reliance of agricultural activities on monsoon rains, especially in regions like south Tamil Nadu, poses a risk to the companys performance, as poor monsoon seasons can impact disposable income for luxury goods such as jewellery.

Economic Fluctuations: An economic downturn could lead to reduced consumer spending, directly affecting demand and sales for the companys products.

Seasonal Sales Variability: Seasonal shifts may result in inconsistent sales, potentially impacting the companys profitability.

Cost Management Challenges: Inability to effectively control costs could erode profit margins and hinder future growth opportunities.

Gold Price Volatility: The company faces the risk of gold price fluctuations, which can occur frequently and affect both the upside and downside market dynamics.

Regulatory Changes: New government policies related to taxation and stringent banking regulations could disrupt the demand and supply chain, influencing the industrys operational framework.

Technological Advancements: Embracing new technologies in jewellery design and manufacturing can open up additional avenues for product innovation and operational efficiency.

E-commerce Expansion: The growing trend of online shopping presents an opportunity to tap into a wider customer base and diversify sales channels.

Sustainable Practices: Adopting sustainable and ethical sourcing methods can enhance brand reputation and appeal to a socially conscious consumer demographic.

Global Market Penetration: Expanding into international markets could provide new revenue streams and reduce dependency on domestic economic conditions.

RISKS AND CONCERNS:

Market Structure Challenges: The predominance of an unorganized market sector poses risks to the structured operations of the company, potentially impacting efficiency, and profitability.

Political Fluctuations: Political unrest can have a significant impact on capital markets, affecting investor confidence and financial stability.

Economic Liberalization Risks: While the opening up of the economy presents opportunities, it also introduces competition and market volatility, acting as a double-edged sword.

Dependency on External Markets: The Indian diamond market is highly influenced by the US markets, making it susceptible to fluctuations in the American economy.

Export Vulnerabilities: As a company with a substantial export component, shifts in foreign economies or alterations in international trade policies can have a direct effect on business operations.

Internal Financial Control: In terms of financial oversight, the company has established sufficient internal financial controls relevant to the financial statements, which are in line with the scale and scope of its operations. An independent agency has conducted a comprehensive assessment of these controls, and the results have been evaluated. Based on this evaluation, the Board of Directors has concluded that as of March 31, 2024, the company possesses effective internal controls over financial reporting.

Furthermore, it is noteworthy that the companys internal financial controls over financial reporting have remained fully operational and effective throughout the period of lockdown, ensuring the continued integrity and reliability of financial reporting even during challenging times.

FINANCIAL PERFORMANCE

The financial statements of the Company have been prepared in accordance with the Indian Accounting Standards as specified under Section 133 of the Companies Act, 2013 and the applicable Rules, as amended from time to time and other applicable provisions. The salient parameters of the financial performance of the Company during the year under review as compared to previous year are as under:

FINANCIAL HIGHLIGHTS _{(In lakhs)}

KEY FINANCIAL RATIOS

Details of key financial ratios of the Company, changes therein as compared to previous financial year along with explanations are as under:

HUMAN RESOURCES & INDUSTRIAL RELATIONS

The company recognizes its workforce as its most valuable asset and is committed to fostering a culture that emphasizes performance, competency, accountability, and responsibility. As of March 31, 2024, the company is proud to have a dedicated team of 572 full-time employees. Throughout the year, the company has maintained harmonious industrial relations, which is a testament to our collaborative and respectful work environment.

CAUTIONARY STATEMENT

The statements provided in this section reflect the companys goals, forecasts, expectations, and estimates, which may constitute forward-looking statements under the purview of applicable securities laws and regulations. These statements are based on current beliefs, assumptions, expectations, and projections, all of which involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. It is advised that readers not place undue reliance on these forward-looking statements, which speak only as of the date they are made.