Orosil Smiths India Ltd Management Discussions

GLOBAL ECONOMY

The global growth rate is projected to remain steady but slow. Advanced economies are expected to experience a slight acceleration, with growth rising from 1.6 percent in 2023 to 1.7 percent in 2024 and 1.8 percent in 2025. However, this will be offset by a modest slowdown in emerging market and developing economies, which are projected to grow at 4.2 percent in both 2024 and 2025.

The recent conflict in the Middle East has heightened geopolitical risks, which could impact global economic stability. These uncertainties may impact trade, investment and overall growth.

[Source: 1. World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence 2: World Economic Outlook, April 2024]

INDIAN ECONOMY

Like the previous year, the Financial Year 2023-24 was also volatile due to significant gold price spikes driven by international geopolitical and macroeconomic forces. Despite that, and a highly competitive environment, the Jewellery Division clocked a healthy 20% topline growth driven by double digit buyer growth resulting in a market share growth across most markets. Same store growths have also been healthy at 16%.

Sudden spikes in gold rates could see temporary softening of customer demand. There is a likelihood of gold prices remaining elevated through the year, given the geopolitical uncertainties and elections across several countries and weak global economic outlook. The Division will continue to prioritise an aggressive growth strategy with strong investments in retail expansion and store inventory. Volatility in consumer demand may continue due to macroeconomic forces, but in the Financial Year 2024-25 as well as in the medium term the jewellery market opportunity is excellent, driven by formalisation, Indias GDP growth and significant headroom for market share gains.

INDUSTRY REVIEW: INDIAN GEMS AND JEWELLERY INDUSTRY

Macroeconomic Context

The global economy has shown signs of moderate recovery, posting a growth rate of 3.5% in CY 2022. However, this growth is expected to moderate to 3% in CY 2023 and further to 2.9% in CY 2024. Despite these challenges, the Indian economy remains resilient.

Export Trends and Recovery

During the third quarter of FY 2023-24, the Indian gems and jewellery sector witnessed a remarkable V shape recovery. After experiencing a significant decline of over 20% in the previous two quarters, the industry rebounded due to several factors:

• Resilient Growth: The Indian economy demonstrated resilience, contributing to the recovery of the gems and jewellery sector.

• Festive Season Demand: The festive season played a crucial role in boosting consumer sentiments and driving demand for jewellery.

• Positive Consumer Sentiments: Despite the challenges posed by the pandemic, consumers showed confidence in the sector.

• India-UAE Trade Pact: The impact of the trade pact between India and the UAE positively influenced exports. Key Highlights

• Gross Exports (December 2023):

In December 2023, gross exports of gems and jewellery grew by 14.12% year-on-year, reaching US$ 2.91 billion. This growth was driven by increased exports of plain gold jewellery to the UAE market, shifting preferences towards platinum jewellery, and rising interest in coloured gemstone-studded jewellery.

• Segment Performance:

Various segments within the industry exhibited different export trends:

Positive Growth: Exports of plain gold jewellery, platinum jewellery, coloured gemstones, and synthetic stones increased during this period.

Challenges Faced: Polished diamonds, lab-grown diamonds, and studded gold jewellery reported negative exports due to global economic conditions and reduced consumer demand in top export destinations.

• Challenges Ahead:

The gem and jewellery industry may encounter challenges in the last quarter of FY 2023-24 due to factors such as increased import duty on gold and silver, supply chain dynamics, and market conditions.

[Source: Industry Report on Indian Gems & Jewellery Secto : GJEPC Quarterly Report (Q3) FY2023-24]

Industry Outlook

The Indian gems and jewellery industry has been a significant contributor to the countrys economy, employment, and exports. However, recent years have witnessed both challenges and opportunities for the sector. Lets explore the outlook based on available reports and insights:

1. Export Trends and Recovery

• Recent Decline: Indias gems and jewellery exports faced a decline of 12.17% to Rs 2,65,187.95 crore (USD 32,022.08 million) during the 2023-24 financial year compared to the previous year1. This decline was influenced by factors such as high interest rates in the US and a slow recovery in China.

• Q3 Recovery: Despite the challenges, the sector witnessed a V shape recovery during the third quarter of FY 2023-24. After declining significantly in the previous two quarters, the industry rebounded due to resilient growth in the Indian economy, festive season demand, positive consumer sentiments, and the growing impact of the India-UAE trade pact.

2. Global Market Trends

• Gold Demand: The global gold market remains a crucial driver for the Indian gems and jewellery industry. Factors such as geopolitical tensions, inflation concerns, and currency fluctuations impact gold prices and demand.

• Coloured Gemstones: There is a rising interest in coloured gemstone-studded jewellery globally. Consumers are seeking unique and vibrant pieces, driving demand for sapphires, emeralds, rubies, and other precious stones.

3. Challenges Ahead

• Inflation and Supply Chain Disruptions: Rising inflation and supply chain disruptions continue to pose challenges. The industry must navigate cost pressures while maintaining quality and competitiveness.

• Import Duty and Economic Conditions: The recent increase in import duty on gold and silver findings may impact the industrys performance. Additionally, economic conditions and market dynamics remain uncertain.

4. Growth Opportunities

• Domestic Demand: Indias domestic market remains a significant growth driver. The sectors focus on innovative designs, affordable pricing, and marketing strategies can tap into the growing middle-class consumer base.

• Digital Transformation: Embracing e-commerce and digital platforms can enhance market reach and customer engagement. Online sales channels are gaining prominence, especially among younger consumers.

[Source: GJEPC Quarterly Report (Q3) FY2023-24]

COMPANYS STRUCTURE

Your Company is engaged in the manufacturing and sale of silver jewellery, gold jewellery as well as plain and trading of Silver Articles. The Company launched two brands by the name "Kuhjohl" and "Sincere" for semi-precious and precious stones studded in gold and silver.

The management is planning to move forward in this business of Gold, silver and jewellery and other various steps to take forward the business of the Company at greater heights. With the global economy gradually turning around again and gradually opening for business, the industry got the required encouragement to grow further.

As per the Quality control order called the Hallmarking of Gold Jewellery and Gold Artefacts Order, 2020, as amended, for mandatory hallmarking of gold jewellery/artefacts, issued by the Ministry of Consumer Affairs, Food and Public Distribution on 15 January, 2020, every jeweller who wants to sell hallmarked jewellery with effect from 16th June, 2021, has to obtain a registration from Bureau of Indian Standards. Mandatory hallmarking will ensure the purity of Gold and hence, transparency can be maintained.

Accordingly, Our Company Orosil Smiths India Limited registered its Hallmark named as "ORO" under Bureau of Indian Standards having registration no. 8890028608 and is now eligible to sell the hallmarked jewellery under the same hallmark.

Also, the Company expanded its business in Textile area by altering its Memorandum of Association its Annual General Meeting held on 30^th September, 2019. The management However, the management is still looking into potential opportunities to commence business in this sector. The Company has also registered its Trademark "mingALL" under class 25 for trading of Apparels, Footwear and Headgear.

A. OPPORTUNITY AND THREATS

The gems and jewelry market is highly competitive with the presence of key players. Key players are focusing on online distribution channels for the online marketing and branding of their products to expand their geographical reach and increase their customer base. Leading manufacturers in the gems and jewelry market are focusing on leveraging the opportunities posed by the emerging markets of Asia-Pacific, like China and India, to expand their revenue base because of the rising income levels and their religious traditions, as they consider giving jewelry ornaments as auspicious. The key brands are embarking on innovation and new product developments infused with the latest technology to provide the luxury feeling and perfect craftsmanship to their product offerings.

Opportunities

Domestic Demand

Indias domestic market continues to be a significant growth driver for the gems and jewellery industry. As the middle class expands, there are ample opportunities to tap into this consumer base. Key strategies include:

Innovative Designs

Focusing on unique and appealing designs that resonate with Indian consumers preferences.

Affordable Pricing

Offering competitive pricing without compromising on quality.

Effective Marketing

Leveraging targeted marketing campaigns to create awareness and drive demand.

2. Digital Transformation

Embracing e-commerce and digital platforms opens up new avenues for market reach and customer engagement. Online sales channels are gaining prominence, especially among younger consumers who prefer convenient and seamless shopping experiences. Investing in robust online platforms and digital marketing can enhance visibility and boost sales.

Threats:

1. Inflation and Supply Chain Disruptions Rising Inflation

Inflationary pressures impact production costs, raw materials, and operational expenses. Managing these cost pressures while maintaining product quality is a challenge.

Supply Chain Disruptions

Global supply chain disruptions, whether due to geopolitical events or logistical challenges, can affect sourcing, production, and timely delivery. Ensuring a resilient supply chain is crucial.

2. Import Duty and Economic Conditions Import Duty

The recent increase in import duty on gold and silver findings may adversely affect the industrys performance. Higher duties can raise costs and reduce competitiveness.

Economic Uncertainty

Market dynamics remain uncertain due to various factors such as global economic conditions, trade policies, and geopolitical tensions. Navigating these uncertainties requires strategic planning.

Jewellery consumption in India is influenced by region, income, and cultural beliefs, and it differs widely across states. Customer service expectation also varies from one region to other.

The Company in order to identify and mitigate risks to minimize its impact on business, ensures that prudent risk management practices are followed during the decision-making process. Moreover, any slowdown in the economic growth in India could cause the business of the Company to suffer. The growth of industrial production has been variable.

Your Company is looking forward to the new opportunities in the Gems & Jewellery and Textile Sector to expand and diversify the business into new areas and looking for a bright future of the Company, subject to the stability of the Conditions.

B. SEGMENT -WISE OR PRODUCT WISE PERFORMANCE

The Company operates in only single segment. The Company is operating in two brands by the name "Kuhjohl" and "Sincere" for semi-precious and precious stones studded in gold and silver.

Currently, the Company operating in one segment only and has not yet started its operations in Textile Sector. However, the management was looking for the potential opportunity to grow in this segment. Now, we are planning to start the business in this area and for the same purpose the Company has registered a Trademark named "mingALL" for trading of Apparels, Footwear and Headgear. Also, the Company is venturing to provide an online web-store to the new entrant and designers to promote their designs and to showcase their skills and talent, in order to bring them closer to their potential customers, subject to keeping in view the effects of Covid-19 pandemic.

C. RISKS AND CONCERNS

The fluctuation in prices of the precious metals, long operating cycle, working capital requirements, difficulties of securing retail store locations are the matter of concern for the Company. Moreover, slowdown in the economic growth in India could cause the business of the Company to suffer.

The Company in order to identify and mitigate risks to minimize its impact on business, ensures that prudent risk management practices are followed during the decision-making process. The Company expects to make full use of the opportunities available to it, however, the challenges are inevitable in any industry. Your company is talking all precautions to offset the associated risks.

D. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has maintained a proper and adequate system of internal controls. This ensures that all Assets of the Company are safeguarded and protected against loss from unauthorized use or disposition. The Audit Committee and Independent Internal Auditors regularly review the operating systems and procedures for efficiency and effectiveness. Based on the assessment carried out by Internal Auditor and the evaluation of the results of the assessment, the Board of Directors are of the opinion that the Company has adequate internal controls over financial reporting that are operating effectively as of March 31, 2024.

Your Companys internal control systems do commensurate with the nature and size of its business operations. The Companys Policy and process corrections are undertaken based on inputs from the internal auditors.

E. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year under review financial performance of your Company involves the Income from operations which is 150.49 Lakh (Previous Year: 173.74 Lakh). Profit after Tax (PAT) has been a loss of 140.66 Lakh as compared to a loss of 134.55 Lakh in previous year. The Company has no Bank Borrowings.

The Directors are making efforts to enhance the business activities and can only hope to regain the business activities in future when situation became stable. But we expect business loss to reduce, though it is too early to forecast the situation.

Details of any change in Return on Net Worth as compared to the immediately previous financial year:

Particulars	FY2024 (Rs)	FY2023 (Rs)
Paid-up Share Capital	52,200,000	52,200,000
Other Equity	(3,59,85,397)	(3,19,17,694)
Net Worth	1,61,98,001	2,02,76,536
Profit after Tax	(40,66,486)	(34,54,869)

Significant changes in Key Financial Ratios:

Particulars	FY 2023-24	FY 2022-23	% Change from previous year	Reason for change
Debtors Turnover Ratio	NA	NA	NA	Not Required
Inventory Turnover Ratio (in times)	0.0	.10	0.10%	Not Required
Interest Coverage Ratio	NA	NA	NA	Not Required
Current Ratio (in times)	1.7	2.00	0.15%	Not Required
Debt-Equity Ratio	NA	NA	NA	Not Required
Operating Profit Margin (%)	(80.75%)	(39.67%)	(63)	Reduction in Sales and Increase in expenses
Net Profit Margin (%)	(81%)	(45%)	(36%)	Sales reduced by 32%
Return on Capital Employed (%)	(16%)	(13%)	(3%)	Not Required

F. MATERIAL DEVELOPMENT IN HUMAN RESOURCES

There have been no material developments in Human Resource and Industrial Relations front during the FY 202324. Given the nature of business your Company is engaged in; it does not require Human Resources at a large level. As on March 31, 2024 the Company has 03 (Three) full time employees. The Company had engaged service of consultants on contractual basis during the year 2023-24, as and when required. The industrial relations within the Company have remained harmonious throughout the year.

The Company acknowledges that its employees are its principal asset and believes in building a strong performance and competency driven culture amongst its employees with greater sense of accountability and responsibility.

Adapting work culture to suit the dynamic balancing of people requirements and employee needs is an ongoing process. The Board of Directors of your company would like to place on record their sincere appreciation for the efforts and contribution made by all the employees of the Company in the challenging environment.

CAUTIONARY STATEMENT:

Certain Statements in the Management Discussion & Analysis Report describing the Companys view about the industry, expectations, objectives, etc. may be forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from those expressed or implied. Factors like changes in government regulations, tax laws and other factors such as industrial relations and economic developments, etc. may further influence the Companys operations include, among others, economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which it operates, changes in the Government regulations, tax laws and other statutes, any epidemic or pandemic, natural calamities over which we do not have any direct/indirect control.