Khazanchi Jewellers Ltd Management Discussions

Global Economy

In FY 2024-25, the global economy is projected to grow at 3.20% in 2024 and 3.30% in 2025, according to the IMFs July 2024 World Economic Outlook Update. Despite a strong start, the US and Japan saw slower growth due to moderating consumption and supply chain issues. Inflation, especially in services, remains a challenge, complicating central banks efforts to normalize policies. Advanced economies are cautiously easing these policies, while emerging markets are vigilant against external risks and currency depreciation.

Financial conditions remain accommodative, with high corporate valuations despite rising yields. The US is forecasted to slow down, the Euro area to recover modestly, and Japan faces downward revisions due to supply issues. In contrast, emerging markets, particularly China and India, are set for stronger growth driven by private consumption and exports. Policymakers must focus on price stability, fiscal discipline, and structural reforms to enhance growth prospects, while fostering multilateral cooperation to address global economic challenges.

Source: IMF World Economic Outlook, Jul 2024 Indian Economy

Indias economy showed robust growth in FY24, with real GDP rising by 8.2%, surpassing the 8% mark in three of the four quarters. Manufacturing and construction sectors led the expansion, both growing by 9.9% due to strong domestic demand and infrastructure development. The services sector also performed well, with significant increases in GST collections and e-way bills.

Inflation moderated to 5.4% from 6.7% in FY23, supported by government interventions and RBI interest rate adjustments. The fiscal deficit improved to 5.6% of GDP from 6.4% the previous year, reflecting ongoing fiscal consolidation efforts. Gross tax revenue grew by 13.4%, driven by a 15.8% rise in direct taxes. Capital expenditure rose to 9.5 lakh crore, significantly boosting economic activity.

The Indian Rupee remained stable amid global volatility, and external debt as a percentage of GDP was low at 18.7%, with foreign exchange reserves covering 97.4% of total debt. Despite global uncertainties and geopolitical tensions, Indias economic performance highlighted its resilience and effective policy responses, positioning it for continued growth in the coming fiscal year.

India is the second largest jewellery consuming nation in the world

India, the worlds second-largest consumer of gold jewellery, reflects a vibrant market deeply rooted in tradition and culture. Gold plays a crucial role, especially in bridal jewellery, which captures 50-55% of the market due to its significance in weddings and as a form of financial security. With approximately 11-13 million weddings annually and a population where over half are under 25, demand for bridal gold remains strong.

Despite urbanisation, 55% of the population still lives in rural areas, where gold remains a key investment, influenced by agricultural performance. Plain gold jewellery dominates with an 80-85% market share, though theres growing interest in lightweight and studded pieces, particularly in Northern India. Regional preferences vary, with the South favoring plain gold often adorned with diamonds or semi-precious stones.

Recent trends show a shift towards modern designs and daily wear jewellery among younger consumers, driven by exposure to global trends. E-commerce is expanding, contributing 5-10% of sales, and regulatory changes, such as GST and increased import duties, have shaped market dynamics. In 2021, India purchased 511 tonnes of gold jewellery, underscoring its significant position in the global market.

Source: https://www.gold.org 3.1 Indian Gold Market

The Indian gold jewellery market is driven by both cultural traditions and economic data. Bridal jewellery commands a significant 50.00%-55.00% market share, reflecting its pivotal role in Indian weddings and festivals, which witnessed approximately 0.32 Cr weddings in November 2022. Beyond ceremonial occasions, everyday wear of gold accessories like chains, necklaces, rings, and bracelets is increasingly popular, fuelling market growth and serving as popular gifts for birthdays and anniversaries. This shift in consumer behaviour underscores the markets resilience and expanding appeal.

Investment remains a cornerstone of the markets appeal, with gold jewellery capturing a dominant revenue share of 77.72% in 2023. This statistic highlights golds enduring value and cultural importance in India. Manufacturers continue to innovate by introducing new variants like blush gold and pink gold, catering to diverse consumer preferences and ensuring ongoing market dynamism and product innovation.

In 2023, over 85.00% of jewellery sales were through offline stores, benefiting from luxury brand presence and personalized consumer experiences. Online sales are expected to grow at over 8.00% CAGR, driven by digital strategies and new product announcements, reflecting a shift towards integrated retail approaches.

Source: https://www.goid.org/goidhub/research/jeweiiery-demand- and-trade-india-gold-market-series

3.1.a The Southern Region Holds the Largest Market Share in Indian Jewellery.

In South India, gold jewellery consumption is particularly high, making up 40% of Indias total demand. This strong preference for gold is driven by the regions tradition of plain 22-carat gold jewellery, high per capita incomes, and low poverty levels. States like Kerala benefit from substantial financial inflows from the Gulf, where many Keralites work, while Tamil Nadus thriving IT and manufacturing sectors contribute to its high gold consumption.

Despite this dominance, recent shifts have been noted Andhra Pradesh and Telangana have seen a rise in gold demand due to increased investment and favourable policies. Conversely, Keralas demand has dipped slightly due to the economic impact of COVID on Gulf economies. In recent years, younger consumers in the South have also shown a growing interest in 18-carat diamond jewellery. Overall, while South India remains the leading market for gold.

Source: https://www.gold.org

3.2 Duty Cuts on Precious Metals to Boost Jewellery Sector

In the Union Budget 2024-25, Finance Minister Nirmala Sitharaman announced a reduction in customs duties on precious metals: gold and silver duties have been cut to 6%, while platinum duties have been lowered to 6.4%. This policy aims to enhance domestic value addition in the precious metals sector, potentially lowering domestic prices and increasing demand.

These duty reductions are set to significantly benefit jewellery companies across the industry. The anticipated decrease in procurement costs for gold and silver will enable businesses to offer more competitive pricing on their extensive range of jewellery products. This revised duty structure aligns with growth strategies and bolsters market positions, supporting continued commitment to providing exceptional value to customers.

Source: https://www.indiabudget.gov.in/doc/budget_speech.pdf

Government Initiatives

Indias gems and jewellery industry has undergone significant regulatory changes aimed at enhancing transparency and global competitiveness. The Union Budget 2023-24 increased import duties on silver dore, bars, and articles to 10.00%, aligning them with gold and platinum duties. This move aims to protect domestic interests and balance trade dynamics.

Foreign Direct Investment rules were relaxed to permit 100.00% FDI under the automatic route, simplifying investment procedures. Demonetisation efforts have encouraged digital payments in jewellery transactions, promoting financial transparency.

Proposals for a gold spot exchange aim to strengthen Indias role in global gold pricing, while the mandatory BIS hallmarking scheme for gold jewellery ensures quality and authenticity by January 2021.

The Gold Monetisation Scheme allows individuals and institutions to earn interest by depositing gold with banks, boosting financial inclusion. Amendments under the Prevention of Money Laundering Act require stricter monitoring of cash transactions in precious metals.

A special government group addresses industry challenges, and proposals for electronic data interchange in E-commerce aim to streamline exports. The temporary suspension of US tariffs on Indian jewellery exports aids industry recovery amid global economic challenges. These measures collectively aim to bolster Indias gems and jewellery sector, fostering sustainable growth and global prominence.

Source: IBEF Gems & Jewellery Report May 2024

Company Overview

At Khazanchi Jewellers Limited, we take pride in our rich legacy of over 50 years in the jewelry industry. Founded in 1971 in Chennai, we have established ourselves as a prominent player in both wholesale and retail markets. Our extensive collection spans gold, diamonds, precious stones, and elegant fancy jewelry, catering to diverse customer preferences.

In an industry known for its emphasis on quality and craftsmanship, we stand out with our commitment to excellence and innovation. Our recent milestone of being listed on the BSE SME in 2023 underscores our growth and resilience in a competitive market. As we move forward, we remain dedicated to delivering exceptional jewelry that enhances lifes special moments and upholds the highest standards of the industry.

Performance Overview

Product Wise

For FY24, Khazanchi Jewellers Limited reported total revenues of 820.77 Cr, driven by the sale of ornaments and bullions. Ornaments contributed a significant 82.38% of the total revenue, amounting to 676.18 Cr, while bullions accounted for 17.62%, totalling 144.59 Cr.

For FY24, Khazanchi Jewellers Limited reported total revenues of 820.78 crore, driven by sales in Tamil Nadu and other cities/states. Tamil Nadu contributed a significant 83.79% of the total revenue, amounting to 687.73 crore, while other cities/states accounted for 16.21%, totaling 133.06 crore.

Financials

Khazanchi Jewellers Limited has reported Strong financial performance for FY24, with Total Income reaching 821.53 Cr, marking a 70.51% YoY growth from 481.82 Cr in FY23.

The companys EBITDA saw a substantial rise to 41.78 Cr, up by 148.97% from 16.78 Cr in the previous year, resulting in an improved EBITDA Margin of 5.09%, a growth of 160 basis points YoY.

Profit After Tax increased to 27.32 Cr, reflecting a 261.13% growth from 7.56 Cr in FY23. Consequently, the PAT margin improved to 3.33%, up by 176 basis points from the previous years 1.57%.

Ratio	31st March 2024	31st March 2023
EBITDA Margin (%)	5.09	3.48
Net Profit ratio (%)	0.04	0.02
Trade Receivable Turnover Ratio (In Days)	5.62	1.03
Inventory Turnover ratio (In Days)	73.11	88.66
Interest service coverage ratio (In Times)	8.64	2.60
Current ratio (x)	4.97	2.32
Debt- Equity Ratio (x)	0.29	1.45
Return on Equity ratio (%)	14.55	20.98

SWOT Analysis Strengths

Wide Product Range: Khazanchi Jewellers Limited offers an extensive array of jewellery catering to diverse customer segments, from the value market to high-end customized designs. Their product profile includes traditional, contemporary, and combination designs across various jewellery lines and price points. They emphasize design innovation, intricate craftsmanship, and superior product quality to align with customer preferences.

Experienced Leadership: With over four decades of combined experience in the Indian jewellery industry, the Promoters of Khazanchi Jewellers Limited bring invaluable insights and strong industry relationships. Their visionary leadership has been instrumental in driving growth strategies. The management team includes professionals with expertise in gems and jewellery, finance, and marketing, supported by skilled manufacturing personnel dedicated to innovation.

Commitment to Quality: Khazanchi Jewellers Limited maintains stringent quality control procedures to ensure product excellence, timely delivery, and competitive pricing. They sell only hallmarked jewellery, underscoring their commitment to quality assurance and customer satisfaction. Transparent policies and reliable service have positioned Khazanchi Jewellers Limited as a trusted brand in the market.

Customer Relationships: Building on a foundation of trust, Khazanchi Jewellers Limited nurtures strong relationships with individual customers and institutional clients alike. Their track record of delivering quality products and personalized service has fostered customer loyalty and repeat business.

Strategic Location: The strategic placement of Khazanchi Jewellers Limiteds showroom enhances customer footfall and ensures the safety and accessibility of their store. This strategic advantage contributes significantly to operational efficiency and customer satisfaction.

Weakness

Stiff Competition: Competition from organized regional and national players requires constant innovation and operational efficiency to maintain market position.

Market Dynamics: Rapid changes in consumer preferences and fashion trends necessitate agile adaptation in product offerings and marketing strategies.

Regulatory Compliance: Ensuring strict adherence to hallmarking standards and consumer protection laws adds operational complexity and cost.

Customer Expectations: Meeting diverse customer expectations for quality, design, and service excellence demands continuous investment in talent and technology.

Opportunities:

Market Expansion: Capitalizing on the growing Indian jewellery market valued at USD 8,552.00 Cr in 2023, with a projected CAGR of 5.70% from 2024 to 2030. This growth offers opportunities to expand geographical reach and capture new customer segments.

E-commerce Growth: Leveraging digital platforms to enhance online presence and tap into the burgeoning online jewellery market. This strategy can broaden market accessibility and cater to tech-savvy consumers preferences.

Product Diversification: Introducing new variants like blush gold and expanding product lines such as designer jewellery to meet evolving consumer trends and preferences. This diversification strategy can stimulate sales growth and attract a wider customer base.

Threats:

Regulatory Compliance: Adhering to stringent regulatory changes and compliance standards in the gems and jewellery sector. Changes in import duties, hallmarking requirements, and other regulatory shifts can impact operational costs and business processes.

Competitive Pressure: Persistent competitive pressure from established national players and local jewellers vying for market share. This competition requires Khazanchi Jewellers to differentiate through superior customer service, innovative offerings, and strategic pricing.

Risks and Concern

Raw Material Supply and Costs: Reliance on gold, silver, diamonds, and other precious stones makes us vulnerable to price fluctuations and availability issues. Regulatory restrictions and import challenges may also impact our ability to source these materials cost-effectively.

Key Personnel Dependency: The experience of our Promoters and senior management is crucial for our growth. Their departure or difficulties in attracting skilled personnel could affect our business stability and operational costs.

Seasonal Fluctuations: Sales are subject to seasonal variations, with higher volumes during festivals. Inadequate preparation for these fluctuations can negatively impact financial performance.

Risk of Loss and Theft: Risks include theft, employee negligence, and damage to inventory. Despite security measures, significant losses not covered by insurance could affect our financial condition.

Competitive Market: The jewellery market is highly competitive, with organized and unorganized players. Increased competition, including from e-commerce, may affect our market share and profitability.

Discretionary Spending Sensitivity: As jewellery purchases are discretionary, economic downturns or changes in consumer spending can reduce demand for our products.

Human Resources

Our team is our greatest asset, driving our success and enabling us to turn industry challenges into growth opportunities. We provide a supportive and nurturing workplace that promotes both career and personal development.

As of March 31, 2024, our workforce consists of 37 employees, including administrative, marketing, skilled, and unskilled workers. The managements positive relationships with the staff contribute to high motivation, effectiveness, and productivity.

Our approach to human resources emphasizes building a performance-driven culture with a strong sense of accountability and responsibility. We are committed to strengthening our organization and emerging more resilient from any crisis.

We are proud to report that there have been no strikes, lockouts, or other disruptive actions. Notably, our company operates without an employee union.

Cautionary Statement

This Annual Report contains forward-looking statements, particularly in the Management Discussion and Analysis section, which outline our Companys goals, projections, and anticipated outcomes. These statements are based on our current expectations and reasonable assumptions, but actual results may differ due to various factors.