Neogem India Ltd Management Discussions.
The Gems and Jewellery sector plays a significant role in the Indian economy, contributing around 7 per cent of the countrys GDP and 15 per cent to Indias total merchandise exports. It also employs over 4.64 million workers and is expected to employ 8.23 million by 2022. One of the fastest growing sectors, it is extremely export oriented and labour intensive.
Based on its potential for growth and value addition, the Government of India has declared the Gems and Jewellery sector as a focus area for export promotion. The Government has recently undertaken various measures to promote investments and to upgrade technology and skills to promote Brand India in the international market.
India is deemed to be the hub of the global jewellery market because of its low costs and availability of high-skilled labour. India is the worlds largest cutting and polishing centre for diamonds, with the cutting and polishing industry being well supported by government policies. Moreover, India exports 75 per cent of the worlds polished diamonds, as per statistics from the Gems and Jewellery Export promotion Council (GJEPC). Indias Gems and Jewellery sector has been contributing in a big way to the countrys foreign exchange earnings (FEEs). The Government of India has viewed the sector as a thrust area for export promotion. The Indian government presently allows 100 per cent Foreign Direct Investment (FDI) in the sector through the automatic route.
Gold demand in India rose to 760.40 tonnes between January to December 2018. Indias gems and jewellery exports stood at US$ 4.99 billion between Apr 2019 May 2019. During the same period, exports of cut and polished diamonds stood at US$ 3.52 billion, thereby contributing about 76.96 per cent of the total gems and jewellery exports in value terms. Exports of gold coins and medallions stood at US$ 686.51 million and silver jewellery exports stood at US$ 765.98 million between April 2018 - March 2019.
The gems and jewellery market in India is home to more than 300,000 players, with the majority being small players. Its market size is about US$ 75 billion as of 2017 and is expected to reach US$ 100 billion by 2025. It contributes 29 per cent to the global jewellery consumption.
India is one of the largest exporters of gems and jewellery and the industry is considered to play a vital role in the Indian economy as it contributes a major chunk to the total foreign reserves of the country. The Goods and Services Tax (GST) and monsoon will steer Indias gold demand going forward.
The Gems and Jewellery sector is witnessing changes in consumer preferences due to adoption of western lifestyle. Consumers are demanding new designs and varieties in jewellery, and branded jewellers are able to fulfil their changing demands better than the local unorganised players. Moreover, increase in per capita income has led to an increase in sales of jewellery, as jewellery is a status symbol in India.
The cumulative Foreign Direct Investment (FDI) inflows in diamond and gold ornaments in the period April 2000 March 2019 were US$ 1.16 billion, according to Department for Promotion of Industry and Internal Trade (DPIIT).
Some of the key investments in this industry are listed below.
Deals worth Rs 8,000 crore (US$ 1.19 billion) were made at the Indian International Jewellery Show held in August 2018.
Companies such as PC Jewellers, PNG Jewellers, Popley and Sons, are planning to introduce a virtual-reality (VR) experience for their customers. The customer will have to wear a VR headset, through which they can select any jewellery, see the jewellery from different angles and zoom on it to view intricate designs.
The Bureau of Indian Standards (BIS) has revised the standard on gold hallmarking in India from January 2018. The gold jewellery hallmark will now carry a BIS mark, purity in carat and fitness as well as the units identification and the jewellers identification mark. The move is aimed at ensuring a quality check on gold jewellery.
The Gems and Jewellery Export Promotion Council (GJEPC) signed a Memorandum of Understanding (MoU) with Maharashtra Industrial Development Corporation (MIDC) to build Indias largest jewellery park in at Ghansoli in Navi-Mumbai on a 25 acres land with about more than 5000 jewellery units of various sizes ranging from 500-10,000 square feet. The overall investment of Rs 13,500 crore (US$ 2.09 billion).
Gold Monetisation Scheme enables individuals, trusts and mutual funds to deposit gold with banks and earn interest on the same in return.
KEY ISSUES FACING THE PLAYERS
Large Presence of Unorganised Sector
The majority of Indias diamond workforce is employed by small units, that process diamonds on a job-lot basis. At the low-end, family units process diamonds/make jewellery. However, the share of the unorganised sector in the Indian Gems Jewellery business is declining.
Possible Long-term threat from China
Although India currently enjoys dominance in the worlds cut and polished diamonds market, China may emerge as a viable rival, if not in the near term, certainly in the longer term. An increasing number of diamond processors from Israel and Belgium, and even India, are setting up facilities in China, for a variety of reasons:
(a) the labour force, like in India, is cheap and disciplined;
(b) high economic growth over the past decade has resulted in a significant increase in potential consumers in the high-income segment within the country; by comparison, India has to rely almost solely on exports;
(c) quality of Chinese workmanship is steadily improving.
Threat from Polishing in Producing Nations
Over the last few years, there has been increased political pressure by major diamond producing countries in Africa-Botswana, Angola, Namibia and South Africa-to gain further economic benefits from diamond production through job creation in a domestic cutting and polishing industry. Most of these countries have no history of diamond polishing but the skills can be taught as has been seen by the recent rapid growth of jobs in other non-traditional centres. The pressure towards polishing in the producing countries is growing and increasingly it is a part of the overall agreement permitting mining, or of not imposing high taxes.
The Indian diamond industry has thrived because for economic reasons, most smaller stones cannot be profitably cut in higher cost locations. However, with larger (and higher-value) stones, the cost disadvantage is not a significantly material component of the finished value of the stone, and higher cost polishing can be economically feasible.
Following are the further Threats, Risks & Concerns:
Depreciating value of Rupee having a direct impact on the prices of diamond since it imports cut and polished diamonds.
Penetration of large corporates jewellery traders cutting down margins.
Macro-economic factors such as enactment of new laws such as GST, demonetisation and global demand recession affects the industry growth in general.
Adopting protectionist approach by some developed countries like USA and trade war situation between China and USA may injure Indian jewellery and gems export.
In the coming years, growth in Gems and Jewellery sector would be largely contributed by the development of large retailers/ brands. Established brands are guiding the organised market and are opening opportunities to grow. Increasing penetration of organised players provides variety in terms of products and designs. Online sales are expected to account for 1-2 per cent of the fine jewellery segment by 2021-22. Also, the relaxation of restrictions of gold import is likely to provide a fillip to the industry. The improvement in availability along with the reintroduction of low cost gold metal loans and likely stabilisation of gold prices at lower levels is expected to drive volume growth for jewellers over short to medium term. The demand for jewellery is expected to be significantly supported by the recent positive developments in the industry.
Following are the further Opportunities:
Scaling of economy resultant out of Brand/Advertisement & Publicity/Procurement of Gold, Product Mix, designs, etc.
Growing domestic demand
Concentrating in one sector makes the Company mature in the industry and gain efficiency in operations.
Depreciation in rupee against other currencies will make the export more competitive and company may record better cash inflows.
Due to emerging rivals in the international market, weakness in the rupee leaded to stagnancy in the export which adversely impacted the financial performance of the company. As the Companys accounts with its banks are in non-performing assets since 2015 leading to stoppage of Companys operations. Consequently, the Companys Sales decreased from Rs. 5,76,72,965/- in previous year to Rs. 19,61,040/-in current year which relates to last years stock. The Management of the Company has been putting in its best efforts to revive its business operations and mitigate the losses and is hopeful for better results in the coming years.
Internal Controls & their adequacy:
The Company has in place adequate system of internal control. It has documented procedures covering all financial and operating functions. These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls, monitoring of operations, protecting assets from unauthorized use or losses, compliances with regulations and for ensuring reliability of financial reporting. The Company has continued its efforts to align all its processes and controls with global best practices in these areas as well.
Human Resources & Industrial Relations:
The Companys Human Resources philosophy is to establish and build a strong performance and competency driven culture with greater sense of accountability and responsibility. The Company has taken pragmatic steps for strengthening organizational competency through involvement and development of employees as well as installing effective systems for improving the productivity, equality and accountability at functional levels.
The industrial relations scenario remained unchanged throughout the year.
|For and on behalf of the Board of Directors|
|Chairman & Managing Director|
|Date: 14th August, 2019||G-32, Gems & Jewellery Complex III,|
|Place: Mumbai||Seepz (SEZ), Andheri (E), Mumbai-400096|
|G-32, Gems & Jewellery Complex III,|
|Seepz (SEZ), Andheri (E), Mumbai-400096|