Orosil Smiths India Ltd Management Discussions

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Jul 25, 2024|02:35:00 PM

Orosil Smiths India Ltd Share Price Management Discussions

INDUSTRY REVIEW: INDIAN GEMS AND JEWELLERY INDUSTRY

Indias gems and jewellery export sector which is one of the largest in the world contributed ~27% to global jewellery consumption in 2019. The market size of the global gems and jewellery sector is likely to expand to US$ 103.06 billion by 2023. Indias gems and jewellery exports are expected to reach US$ 100 billion by 2027. Globally, India was the top exporter of diamonds with a share of 33% in 2021. India is the second largest gold jewellery consumer in the world and Indias gold demand will witness a sharp upswing to top 800 tonnes in 2023.

From April-March 2023, Indias gems and jewellery exports were at US$ 37.95 billion. In FY23, cut and polished diamonds accounted for the highest share of exports (58.83%), followed by gold jewellery (25.14%) and silver jewellery (7.82%).

From April- March 2023, the exports of gold jewellery stood at US$ 9.42 billion.

Being amongst the fastest-growing economies in the world, India is emerging as the preferred destination for the gems and jewellery industry. The ready availability of highly skilled labour and strong support by the government will aid the growth of the Indian gems and jewellery sector. India is the global leader in the cutting and polishing of diamonds. Indias Gems and Jewellery sector has been a major foreign exchange generator for the country. Cumulative FDI inflows in diamond and gold ornaments in India stood at US$

1,213.05 million between April 2000-March 2022, according to the Department for Promotion of Industry and Internal Trade (DPIIT). The Sector is globally recognized for the craftsmanship and variety that it offers. In the coming years, growth in Gems & Jewellery industry 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 provide variety in terms of products and designs. Online sale is expected to account for 1-2% of the fine jewellery segment soon.

Industry Outlook

The Government of India has viewed the sector as a thrust area for export promotion, considering its tremendous contribution and growth potential. The Government has undertaken various measures recently to promote investment and upgrade technology and skills to promote ‘Brand India in the international market. The Government has permitted 100% FDI in the sector under the automatic route, wherein no prior approval from the Reserve Bank or Government of India, is required. Having recently signed trade agreements with UAE, India is poised to gain referential access for gem and jewellery products in these important growth markets. Another key global outreach initiative is GJEPCs first-everin-country International Gem & Jewellery Show (IGJS), an exclusive show for international buyers in Jaipur. And with several new exciting projects in the pipeline, the Councils untiring efforts will hopefully usher in another golden era of global fascination with India-made jewellery. quotient and is considered much auspicious. Now, InIndia, goldjewellerypersonifies the jewellery purchase is not only limited to weddings and festivals. With growing Westernization and increasing disposable income, the demand for fashion jewellery in precious metal and precious stones is growing, too. Also, Women being primary consumers of jewellery, their increasing entry into the workforce and disposable income would drive demand.

The rise in urbanization has resulted in changing consumer behavior related to accessories, switching from wearing more pieces of jewelry to keeping it minimal and sophisticated while maintaining the style statement. Such evolving factors have led to a substantial demand for single-stoned stud earrings, pendants, and rings.

The gems and jewelry market is expected to register a CAGR of 5.2% during the forecast period, over the next 5 years (2022-27).

The increase in cross-cultural designs is one of the latest trends gaining popularity in the gems and jewelry market. The demand for jewelry inspired by Italian, European, and Egyptian cultures is expected to drive the market studied over the forecast period.

Domestic Jewellery Industry updates demand:

India is the most preferred country in terms of gems and jewellery export. The Indian Gems and jewellery sector is one of the largest in the world, contributing around 29% to the global jewellery consumption and 7% to the countrys GDP.

The sector employs over 4.64 million employees and is home to over 3,00,000 gems and jewellery players. India is the worlds second-largest gold consumer and the worlds largest diamond cutting and polishing centre.

India is the worlds second largest gold consumer.

Indias gems and jewellery exports reached US$ 39.14 billion in 2021-22, a 54.13% rise from the previous year. In FY22, cut and polished diamonds accounted for the highest share of exports

(62.42%), followed by gold jewellery (23.57%) and silver jewellery (6.95%).

In April 2023, Indias overall gems and jewellery exports was at US$ 3.23 billion.

In April 2021, India imported gems & jewellery worth US$ 1.97 billion. According to the Gem and Jewellery Export Promotion Council, gold bar imports stood at US$ 1,372 million and Gold jewellery stood at US$ 166.75 million between April-October 2021. Indias gold demand stood at 797.30 tonnes in 2021 and is expected to be in a range of 800-850 tonnes by 2023.

In the fourth quarter of 2021, demand for gold rose by 93% over the same period a year ago to

265 tonnes. The second quarter of 2021 has been better for businesses as establishments were better prepared for lockdowns compared with 2020. Total jewellery demand in terms of volume increased by 25% YoY to 55 tonnes in the second quarter of 2021. Revised SEZ act is also expected to boost exports of gems and jewellery.

The Government of India is aiming at US$ 70 billion in jewellery export in the next five years (until 2025), up from US$ 35 billion in 2020.

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.

According to a recent report by the World Gold Council (WGC), India will be the fourth-largest gold recycling country in 2021, recycling 75 tonnes, or 6.5% of all gold recycled globally. According to the WGC report, 11% of Indias gold supply originated from ‘old gold during the last five years, driven by changes in the gold price, future gold price forecasts, and the wider economic outlook.

Source: References - Various industry and media reports and websites including GJEPC, CRISIL, CARE, DIPP, IBEF, internet etc.

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. Its been a tough year for all. 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. However, the COVID-19 was an unprecedented situation that disrupted the Indian gems and jewellery industry, like other industries world over, pushing its boundaries of resilience. But, with the global economy gradually turning around again and gradually opening for business, the industry got the required encouragement to grow further.

It was accepted by the Indian industry that with the pandemic, which had overtaken the global business scenario, things will never be the same again. So, to bring back the industry to working mode again, the workforce is brought back.

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 jeweler 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 30th 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

Growing Industry: 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 organized market and are opening opportunities to grow. Increasing penetration of organized players provides variety in terms of products and designs. India has well established capabilities in manufacturing handmade jewellery and traditional as well as modern designs because of low cost skilled labor.

As per Capita Income has increased, the demand for jewellery was also increased, as jewellery is treated as a symbol of status. Customized service gives a unique identity to the Company distinct from other players.

Increased Government Support & Policy: The Government has permitted 100% FDI in the sector under the automatic route, wherein the foreign investor or the Indian company do not require any prior approval from the Reserve Bank or Government of India. The Government has made hallmarking mandatory for gold jewellery and artefacts.

The Government has reduced custom duty on cut and polished diamond and colored gemstones from 7.5% to 5% and NIL. Presenting the Budget for 2022-23 in the Lok Sabha, Mrs. Sitharaman also announced that the government will facilitate export of jewellery through e-commerce for which it will implement a "simplified regulatory framework" this year. Also, the Gem and Jewellery Export Promotion Council (GJEPC) undertakes direct promotional activities, including joint participation in international jewellery shows, sending and hosting trade delegations, and sustained image-building exercises.

Secure investment: Gold is considered as one of the best performing and most stable assets across the globe, providing high returns over a long period of time.

E-Commerce: Rapid internet penetration and availability of multiple online platforms has expanded the presence of e-commerce in India. Online jewellery buying has gained immense popularity and have discovered a novel way to reach a wider public, particularly in the pandemic-related disruptions and work-from-home era, supported by the use of technology, flexible payment methods, and easy returns policies.

Online sales are expected to increase by 2022-23. Also, Your Company has wide range of products to offer to its customers and it is providing the easy access through its website.

Threats:

Frequent change in Trends and Customer Preferences: The Gems and Jewellery sector is witnessing changes in consumer preferences due to adoption of western lifestyle. Jewellery being a vital fashion and lifestyle statement, demands the players to be more agile, and responsive to the constantly evolving trends and consumer preferences.

Unpredicted price movements and its impact on profit margin: The prices of the precious metals are highly fluctuating, which in turns lead to unpredictable profit margin on products.

Regulatory Framework: Changes in regulation and stringent compliance may cause burden.

Liquidity Crisis: Due to COVID-19, the liquidity crisis was very high due to lower sales and high operating expenses and the working capital cycle was badly affected.

Domination of Un-organized sector in Jewellery Industry: The un-organized sector dominates the gems and jewellery industry in India and affects the profit margins drastically. These players are mostly family jewellers having strong and long-standing relationship with middle-class consumers.

However, the COVID-19 pandemic, the business of the Company has been impacted. The Company is not able to fetch the work orders and requirements of the customers because of unavailability of resources, resulting which the Company is not able to do business properly during this period.

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 planned 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 operating cycle, working capital requirements, The fluctuation difficulties of securing retail store locations are the matter of concern for the Company. Further, various restrictions imposed by the Government in respect to the pandemic, the operations of the Company also closed substantially, resulting into adverse effect on the business. 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, 2023 .

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 73.74 Lakhs (Previous Year: 93.73 Lakhs). Profit after Tax (PAT) has been a loss of 34.55Lakhs as compared to a loss of 19.35 Lakhs 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:

Paid-up Share Capital Particulars FY2023 ( ) 52,200,000 FY2022 ( ) 52,200,000
Other Equity (31918000) (28,579,154)

Net Profit after Tax Worth

(3455000) 20282000 23,620,846 (1,935,866)

F. MATERIAL DEVELOPMENT IN HUMAN RESOURCES

There have been no material developments in Human Resource and Industrial Relations front during the

FY23. Given the nature of business your Company is engaged in; it does not require Human Resources at a large level. As on March 31, 2023 the Company had seven (6) full time employees. The Company has engaged service of Consultants on contractual basis during the year 2022-23, 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. During the spread and continuance of Covid-19 keeping in view the safety of its employees, the Company adopted work from home policy to the extent possible. 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 or like current pandemic COVID-19, etc. may further influence the Companys operations.

References - Various industry reports and websites including GJEPC, CRISIL, CARE, DIPP, IBEF, internet etc.

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