shubhlaxmi jewel art ltd Management discussions


MANAGEMENT DISCUSSION AND ANALYSIS REPORT

INDUSTRY OVERVIEW

The Gems & Jewellery industry has acquired prominence over the years in the country, given its dual utility of improving aesthetics as well as investment. The Gems & Jewellery sector plays a significant role in the Indian economy, contributing around 8% of the countrys GDP and 17% to Indias total merchandise exports. One of the fastest growing sectors, it is extremely export oriented and labour intensive.

India is deemed to be the hub of the global Jewellery market because of its low costs and availability of high-skilled labour. India and China are the largest consumers as well as the largest manufacturers of the gold Jewellery in the world. However, India is the largest player in diamond cutting and polishing. 12 out of 14 diamonds sold in the world are either polished or cut in India. A major chunk of gold Jewellery manufactured in India is for domestic consumption, whereas a major portion of polished diamonds or finished diamond Jewellery is exported. Moreover, India exports 75% 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). UAE, US, Russia, Singapore, Hong Kong, Latin America and China are the biggest importers of Indian Jewellery.

The net exports from India rose from USD 15.66 billion in FY 2004 - 05 to USD 30.96 billion in FY 2018 - 19 at a Compound Annual Growth Rate (CAGR) of 4.99% over FY 2005-19. In FY 2021, India exported USD 23.82 billion worth of cut and polished diamonds, at a CAGR of 5.56%. Indias share in the global diamond market is 65% in value terms, 85% in volume terms and 92% in number of pieces. Indias gems and Jewellery imports increased at a CAGR of 5.93% from USD 11.63 billion in FY 2004 - 05 to USD 26.05 billion in FY 2018 - 19.

Indias gems and Jewellery industry is one of the largest in the world contributing almost 29% to the global Jewellery consumption. Its market size is about USD 75 billion as of 2017 and is expected to reach USD 100 billion by 2025. This sector currently employs over 4.64 million people and is expected to employ 8.23 million by 2022.

SEGMENT WISE PERFORMANCE

The Company is a single product entity, viz Jewellery and is engaged in the business of manufacturing, sales and trading of Jewellery. Jewellery is however, further segregated into gold, diamond, silver etc. Based on geographical areas, the Company has one operating segment i.e. domestic sales. The share of domestic sales in the revenue from operations of the Company during FY 2021-2022 was Rs. 61,70,32,000/-. The segment wise revenue and results of the company as on March 31, 2022 are as under:

(Rupees
Revenue Amount
Domestic Sales 61,70,32,000/-
Net Sales / Income from Operations 61,70,32,000/-
Segment Results:
Profit before tax and interest from each segment 1,04,38,000/-
Net Profit for the year 77,87,000/-

OPPORTUNITIES AND THREATS

The Indian Jewellery market is a very interesting market. At one end of sphere the expenditure on Jewellery as a part of overall wedding expenditure is increasing and as per some reports the expenditure on Jewellery constitutes nearly 35 - 40% of overall wedding expenditure. The trousseau of any Indian bride is even today incomplete without matching Jewellery. The gold and other traditional Jewellery items like Polka and Kundan continues to remain the favorite for wedding wear. On the other end Jewellery is gradually becoming a life style and fashion accessory as well. This has increased the number of times when a Jewellery item is purchased and has therefore also led the Jewellers to invest into, create and stock more of light weight, relatively low priced and diamond studded Jewellery items in addition to traditional wedding Jewellery.

The sector is witnessing changes in customer preferences due to adoption of western lifestyle and their demand for new designs and varieties in Jewellery. Further, rising quality awareness of customers has also provided a fillip to the organized retail segment, which is banking on its ‘reliability and ‘quality to compete against the highly fragmented unorganized Jewellers.

The increase in the gold prices in the recent years has provided an incentive to the customers for recycling of their old jewellery and has also lowered the cost of acquisition of new jewellery. For the jewellers old jewellery acts as a source of raw material and also reduces their cash requirements in the sense that they are able to procure their raw material in kind only.

The Company does not perceive any major or predictable threats except that the retail jewellery is already a working capital intensive business and the demand for jewellery is now increasing beyond the traditional wedding jewellery. This increase in the range and variety of jewellery demanded by the customers requires additional investment in inventory. Also though the diamond jewellery has higher margins it also has a much longer cash conversion cycle vis a vis gold and all of these factors have only increased the working capital intensity of the jewellery business.

OUTLOOK:

The organized jewellers are expected to grow at 10-11% through Fiscal 2022 and this growth will continue to be based on:

i. Continuing shift from unorganized towards organized players;

ii. Longer duration promotional schemes; and

iii. Fresh showroom additions

At the same time operating profitability is expected to remain stable at around 5% despite the aggressive promotional schemes and new showroom openings on account of sales mix shifting towards diamonds and diamond studded jewellery which have higher margins. The increasing number of Indian middle class with a commensurate increase in the disposable income is expected to lead to an increase in the jewellery demand.

RISKS AND CONCERNS:

The Company has well defined systems and procedures for managing its operational risks, which includes a system of movement of jewellery through specialized courier agency, strong room and CCTVs and armed guards at all its showrooms. The entire inventory of the Company is insured. The Company has cash pick up arrangements with leading banks, with transit insurance. The Company is also exposed to price risk movements in gold. However, it has put rigorous systems and procedures in place to take care of these concerns. The Company has in place a risk management framework that helps in anticipating, identifying and evaluating business risks and challenges across the Company and finding ways to mitigate them.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has effective internal control system in place, which are regularly reviewed by independent Internal Auditors of the Company and the internal audit reports are periodically reviewed by Audit Committee. The Company has also put in place adequate internal financial controls with reference to the financial statements commensurate with the size and nature of operations of the Company. Based on the assessment carried out by an independent agency and the evaluation of the results of the assessment, the Board of Directors and Auditors are of the opinion that the Company has adequate internal controls over financial reporting that are operating effectively as of March 31, 2022.

FINANCIAL PERFORMANCE:

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

Brief Financial results are as under FY 2021-2022
Revenue from Operations 61,70,32,000
Add: Other Income 9,000
Total Revenue (A) 61,70,41,000
EXPENSES
Employee benefit expense 1,11,92,000
Finance Cost 74,86,000
Depreciation 12,49,000
Other Expense 3,07,95,000
Total Expense (B) 60,66,03,000
Profit before tax (A) - (B) 104,38,000
Less: Tax Expense 26,51,000
Profit after tax 77,87,000
Earnings per share 0.94

HUMAN RESOURCES & INDUSTRIAL RELATIONS

The Company acknowledges that its principal asset is its employees and believes in establishing and building a strong performance and competency driven culture amongst its employees with greater sense of accountability and responsibility. The industrial relations within the Company have remained harmonious throughout the year.

References - Various industry reports and websites.