Silgo Retail Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION ANALYSIS REPORT</dhhead>

GLOBAL ECONOMIC REVIEW

The global economy exhibited impressive resilience in 2023; however, the pace of growth remains slow. According to the International Monetary Fund (IMF), the global economy achieved a modest growth rate of 3.2% in 2023. Factors such as escalating geopolitical conflicts, higher inflation, prolonged higher interest rates, a slow recovery in China, and volatility in energy prices and food markets, have led to a slowdown in global economic growth. Furthermore, the Red Sea crisis has caused the biggest diversion of global trade in decades, leading to delays and heightened expenses for shipping lines.

Positive factors such as ongoing disinflationary trends and strong economic performance in the United States and several major emerging markets and developing economies indicate signs of stable growth and a reduced likelihood of a severe economic downturn. Global inflation continues to recede at a faster pace from 8.7% in 2022 to 6.8% in 2023. While headline inflation has sustained a decline from its unprecedented peaks, core inflation has proven to be sticky and is expected to decline gradually. The US has witnessed the strongest recovery among major economies. Its GDP increased from 1.9% in 2022 to 2.5% in 2023, supported by a stronger performance in private consumption, swift containment of a looming banking crisis, a tight labour market, and rising wages. Despite experiencing a contraction in GDP growth of 0.4% in 2023, the Euro Area managed to avert recession and has shown fortitude in navigating through unprecedented shocks from the ongoing Russia-Ukraine war, surge in energy prices and the lingering effects of tight monetary policy.

OUTLOOK

The global economy is expected to maintain its resilience in 2024, with the IMF projecting a growth rate of 3.2% for both 2024 and 2025. Advanced Economies (AEs) are projected to witness a modest uptick in growth from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025. Emerging Markets and Developing Economies (EMDEs) are expected to experience a slight decline from 4.3% in 2023 to 4.2% in 2024 and 2025. Global headline inflation is expected to decrease to 5.9% in 2024 and 4.5% in 2025. With the improvement in the economic landscape, the World Trade Organisation predicts a moderate recovery in global merchandise trade volume, with growth rates expected to reach 2.6% in 2024 and further increase to 3.3% in 2025. (Source: IMF - World Economic Outlook April 2024, World Trade Organisation)

INDIAN ECONOMIC REVIEW

The Indian economy maintained a steady growth trajectory, solidifying its position as the fifth-largest economy in the world. According to the provisional estimates of gross domestic product (GDP) growth released by the National Statistical Office (NSO), India’s GDP growth rate has exceeded the second advance estimate and is estimated to reach 8.2% in FY 2023-24 compared to 7.0% in FY 2022-23. The overall economic growth was supported by strong domestic demand, increased investment, moderate inflation and a stable interest rate environment.

India’s economic outlook remains promising, with the IMF projecting a GDP growth rate of 6.8% in FY 2024-25 and 6.5% in FY 2025-26. The economy is poised to benefit from the demographic dividend, increased capital expenditure, proactive government policies, robust consumer demand, and improving rural consumption prospects. As headline inflation eases towards the target, it is expected to stimulate consumption demand, especially in rural areas. The government’s continued emphasis on capital expenditure, and fiscal consolidation efforts, coupled with growing consumer and business optimism augur well for investment and consumption demand. Key government initiatives such as ‘Make in India 2.0’, Ease of Doing Business and PLI scheme are poised to bolster the infrastructural and manufacturing base, enhance economies of scale, boost exports and position India as a global manufacturing hub. (Source: Ministry of Statistics & Programme Implementation, Reserve Bank of India, IMF - World Economic Outlook April 2024)

INDUSTRY REVIEW

INDIAN GEMS & JEWELLERY INDUSTRY

India’s gems and jewellery industry contributes ~7% to India’s Gross Domestic Product (GDP) and provides employment to ~5 million people. The industry contributes ~10-12% of India’s total merchandise exports. Recognising its potential for growth and value addition, the government has declared the gems and jewellery sector as a focus area for export promotion. Economic downturns, inflationary pressures in major economies, diminished demand and decreased consumer spending on luxury items, like jewellery adversely impacted India’s exports of diamonds and jewellery to the key export countries in FY 2023-24. Despite challenges such as geopolitical tensions, inflation, record-high gold prices, fluctuating diamond rates, and a decline in exports in FY 2023-24, the gems and jewellery industry remain resilient. (Source: IBEF, GJEPC)

GEMS & JEWELLERY EXPORTS

India is a leading exporter of gems and jewellery, ranking 6^th in the world. Its share in the world’s exports of gems and jewellery is 4.3%. In FY 2023-24, India’s export sector faced significant challenges due to conomic slowdown in key export markets, high interest rates, inflation, reduced demand in the USA and slower growth in China. Moreover, escalating geopolitical tensions, including the Russia- Ukraine conflict, and uncertainties surrounding the import of rough diamonds from Russia, added to the complexities faced by the industry. Export challenges have intensified as many dealers and jewellers in G7 nations refuse to purchase polished diamonds without origin confirmation. In FY 2023- 24, the overall exports of gems and jewellery declined by 14.45% to USD 32.28 billion from USD 37.73 billion in the previous period. Exports of cut and polished diamonds dropped by 27.58% to USD 15.96 billion compared to USD 22.04 billion the previous year. Meanwhile, gross exports of polished laboratory-grown diamonds (LGD) decreased by 16.54% to USD 1.40 billion from USD 1.68 billion last year. Despite sluggish demand for cut and polished diamonds from major markets like the USA, Hong Kong, and UAE, these countries still contributed significantly with exports of USD 5.59 billion, USD 4.3 billion, and USD 1.71 billion, respectively. On a positive note, gross exports of coloured gemstones saw a 14% increase to USD 478.71 million in FY 2023-24 compared to USD 420.13 million the previous year. (Source: GJEPC, Economic Times)

IMPORTS

Gross imports of gems and jewellery registered a decrease of 13.81% YoY to USD 22.31 billion in FY 2023-24 compared to USD 25.90 billion in FY 2022-23. India’s gold imports surged by 20% to 780.7 tonnes in 2023, primarily driven by substantial inventory buildup by the trade.

India’s imports of rough diamonds stood at USD 14.26 billion in FY 2023-24 as against USD 17.3 billion recorded in the previous year. Imports of cut and polished diamonds decreased to USD 1.91 billion in FY 2023-24 compared to USD 1.30 billion in FY 2022-23. Moreover, imports of gold bars reached USD 2.90 billion FY 2023-24 compared to USD 2.22 billion in the previous fiscal year. Furthermore, in response to reduced export demand, the Indian gems and jewellery industry voluntarily suspended rough diamond imports for two months from Oct. 15, 2023. This suspension helped to address demand-supply disparities, leading to a positive impact on polished diamond prices in the fourth quarter of FY 2023-24. (Source: GJEPC, Business Standard)

SILVER JEWELLERY

For yet another year and the third in a row now, silver demand massively exceeded supply in 2023. While the global market deficit fell by 30% y/y from last year’s likely all-time-high, at 184.3Moz (5,732t) it was still one of the largest figures on record. Crucially, last year’s deficit coincided with a year in which we experienced sharp declines in bar and coin investment, jewelry and silverware demand that meant global silver offtake fell overall year-on-year. The silver market’s deficit conditions have so far been resilient to pressures from the weaker price elastic elements of demand.

Underpinning silver’s fundamentals is robust demand from industrial applications. These continued to push higher last year, reaching a new all time record, fuelled by the remarkable rise in solar demand and in spite of stagnation in some other sectors. Sluggish silver supply, owing to the slight decline in global mine production, was another factor contributing to silver’s deficit conditions last year. Importantly, we remain confident that such deficit conditions will remain in place for the foreseeable future. As we discuss in detail in Chapter 2, our projections for 2024 see the gap between supply and demand grow by 17%, thanks to ongoing growth in industrial demand, a recovery in jewelry and silverware and still stagnant supply from both mine production and recycling. With further gains in industrial demand likely in the medium term and no obvious sources of supply growth, we believe the status quo will continue.

SILVER SUPPLY OUTLOOK

The likely easing of US monetary policy is expected to drive a notable rally in precious metal prices, although short-term downside risks persist. Silver will benefit from this, but major price gains and a narrowing of the gold:silver ratio may have to wait until tightness in physical silver markets develop Silver’s market deficit is expected to grow by 17% in 2024 as supply stagnates and industrial demand posts another record. Deficits should also continue, depleting currently ample inventories.

While silver’s absolute performance has been decent, it has been arguably disappointing relative to gold. With speculators coming back into the sector, we had expected that the white metal would outperform. After all, its smaller overall size does often see silver move in a far more volatile manner than gold. However at the time of writing, the gold:silver ratio has failed to break below 85:1 since the start of the year.

Silver’s supply-demand conditions, meanwhile, are expected to have another very strong year in 2024. Robust gains from photovoltaic applications and decent performances in other segments are expected to see industrial demand reach a new all-time record. An uptick in discretionary spending and restocking should boost jewelry and silverware demand, driving y/y rebounds in both demand segments. All this should more than offset the declines we expect in bar and coin investment, for reasons touched on above. Crucially, supply will continue to stagnate, with a marginal decline forecast for the year.

SILVER DEMAND OUTLOOK

Industrial demand is forecast to rise by 9% this year to a new record high. Modest growth in the global economy will fuel gains across all segments of demand. As with the last two years, end-uses in the green economy will remain the main drivers of demand along with a resurgence in consumer electronics. That said, as new installations plateau, the notable gains in PV of the last two years may be difficult to replicate. That aside, geopolitics and trade disputes have the potential to disrupt our forecast. The structural decline in photographic demand is also likely to continue in 2024. Jewelry fabrication is expected to recover in 2024 by a modest 4%. India is expected to be the biggest contributor, in part as restocking by retailers resumes. A slight rise is also forecast for the West thanks to growth in discretionary spending and restocking. That also benefits East Asian exporters, but the regional total is curbed by losses in China due to such challenges as consumers’ preference for gold. We also forecast silverware demand to rise by 7% this year, again mostly due to India on the back of ongoing economic strength and rising disposable incomes.

ORGANISED JEWELLERY INDUSTRY - INDIA

India’s gems and jewellery industry, traditionally fragmented and largely composed of small and mediumsized enterprises, has seen significant transformation in the past decade. This shift has been driven by the increased penetration of organised players, changing consumer preferences, and supportive government regulations that aid the industry in transitioning to a more organised and regulated structure. Established brands play a pivotal role in driving the organised sector. These organised players are capitalising on their brand reputation, product quality, and substantial investments in branding and marketing to expand their market share and outpace the highly fragmented unorganised jewellers and retailers. The rising consumer preference for branded jewellery is compelling both international and Indian brands to introduce a diverse range of innovative designs and products, thereby significantly expanding the market for branded jewellery in India. There is a discernible trend towards formalisation in the jewellery sector, with the organised market representing 36-38% of the total jewellery market compared to ~22% in FY 2018-19. This trend is underscored by the proliferation of stores and the increasing consumer preference for purchasing jewellery from branded retailers, especially in recent years, resulting in substantial shifts in market dynamics. (Source: Motilal Oswal)

SWOT ANALYSIS:

GROWTH DRIVERS AND OPPORTUNITIES

Rising disposable income and favourable demographics: The burgeoning young middle-class population, the rise of dual-income households and increasing disposable income have spurred higher expenditures on luxury items such as high-quality, branded jewellery. Additionally, gold, a symbol of wealth and prosperity deeply ingrained in Indian culture and ceremonies, ensures sustained demand. The millennials, Gen Z, and tech-savvy consumers who are brand conscious are further boosting the demand for premium, branded jewellery. Moreover, emerging market consumers seek established brands that evoke trust and offer an enhanced lifestyle, thereby driving growth in the branded jewellery segment.

Explosive growth of e-commerce and digital platforms: The widespread adoption of smartphones and digital technology has fuelled a surge in online shopping, expanding the market and increasing accessibility to a wider range of jewellery designs and products. Furthermore, social media influence is empowering consumers with extensive exposure to fashion trends, jewellery styles, and brands. This evolving consumer behaviour presents significant opportunities for the gems and jewellery industry.

Growing popularity of lightweight fashion jewellery: The rising trend of lightweight fashion jewellery, particularly among younger consumers, has led to significant growth in this segment. It presents a burgeoning opportunity for the Indian gems and jewellery industry as more younger consumers seek affordable, stylish, and versatile jewellery options for various occasions.

India as a preferred destination: Global economic dynamics have shifted in recent years amid geopolitical and trade tensions among major countries. India, one of the world’s fastest-growing economies, is increasingly seen as a preferred destination for the gems and jewellery industry. It stands to benefit from the ‘China Plus One’ strategy, as international corporations actively striving to diversify their sourcing away from China. This shift presents substantial opportunities for the

Indian gems and jewellery industry. Moreover, India’s reputation for exquisite craftsmanship and diverse designs makes it a favoured choice among international consumers.

THREATS AND CONCERNS

Inflation and gold & silver price volatility: The recent sharp increase in gold prices has influenced silver consumption demand, primarily in jewellery, constituting approximately three-quarters of total consumption in India. Consumer interest in gold, silver, gems, and jewellery might weaken amid high inflation and economic slowdowns in major markets. Sluggish demand in the international and domestic markets may lead to a decline in exports.

Geopolitical tensions and G7 sanctions on Russian diamonds: The escalating geopolitical tensions, including the ongoing Russia-Ukraine war and conflicts in the Middle East, pose risks to the Indian gems and jewellery industry. The imposition of direct import restrictions on Russian-origin diamonds starting 1st January, 2024, and on diamonds processed by third countries from 1st March, 2024, has raised significant concerns for the industry. India’s reliance on Russian rough diamonds and the non-acceptance of Russian diamonds in G7 nations could potentially disrupt the supply of rough diamonds, impacting the manufacturing of polished diamonds in India and subsequently affecting its export market.

Reliance on imports: Raw materials are critical to the gems and jewellery industry, with India importing approximately 90% of its raw materials, including raw diamonds and gold & silver bars. This dependency makes the industry susceptible to any adverse regulations that could restrict the supply of these essential raw materials for diamond and gold and silver jewellery.

Industry fragmentation: The Indian gems and jewellery industry is highly fragmented and unorganised. The industry is majorly dominated by small, family-operated jewellery shops that have been established for years. Many customers favour these local shops due to typically higher prices in the organised market, posing a challenge to the growth of the organised sector.

RISK MANAGEMENT

The Company has an efficient risk management framework for the timely identification, assessment and mitigation of key business and operational risks. The Company’s key risks and their corresponding mitigation measures are depicted below:

Risk		Impact	Mitigation
Macroeconomic risk		Geopolitical tensions, global economic slowdown, supply chain disruptions, high inflation and high silver prices could potentially affect consumer spending, and the demand environment in both domestic and international markets and adversely influence the Company’s exports, profitability and growth trajectory.	The Company is committed to expanding its geographical presence, enhancing its e-commerce capabilities, and innovating its product offerings to strengthen its market position. Additionally, it maintains a strong focus on the domestic market, thereby mitigating the impacts of international economic challenges.
			Furthermore, its geographic diversification minimises reliance on any single economy in the event of adverse global circumstances.
Margin risk		Fluctuations in commodity prices and exchange rates could affect the Company’s profit margins and overall profitability.	The Company adopts a strategic approach to minimise the risks associated with margin pressures and operational inefficiencies. This includes implementing cost optimisation measures, expanding its network through an asset-light franchise model, procuring inventory and cultivating enduring supplier relationships. These initiatives empower the Company to effectively navigate volatile market conditions.
Competition risk	The gems and jewellery industry encounters fierce competition from the expanding influence of unorganised sector. The inability to deliver high- quality and aesthetically appealing products could impact the market share and expansion prospects of organised players.			With its superior brand recognition, unique product offerings, and stellar performance, the Company has solidified its position as a leading and preferred jewellery brand in India. Furthermore, continuous investments in research, product innovation, and robust branding and marketing efforts enhance its brand positioning and customer relationships.
Raw material risk	The Company’s inability to timely procure raw materials at competitive prices may adversely impact its operations and profitability				With a highly skilled and dedicated team, along with a well-defined central procurement policy, the Company maintains effective inventory management practices. It capitalises on the gold loan scheme and strong partnerships with reputable suppliers of polished diamonds to secure raw materials promptly and cost effectively.

MANAGEMENT OUTLOOK:

SILGO is strategically positioned to capitalise on the thriving Indian gems and jewellery sector, driven by a burgeoning middle class with increasing disposable income and aspirations for luxury. Committed to innovation and customer-centricity. The Company continues to enhance customer engagement through its digital capabilities, aiming to capture a larger and profitable market share. By strategically expanding its retail footprint across key locations in India, SILGO aims to bolster its brand value and attract new customers, fostering organic growth. With a focus on financial strength, including a solid balance sheet and reduced debt levels, the Company is well equipped for sustained expansion in India’s dynamic market landscape. It is on track to deliver steadily improving financial performance, with consistent revenue growth and profitability. The Company remains dedicated to delivering exceptional craftsmanship and differentiated value propositions to customers while prioritising profitability in its retail expansion strategy.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has established well-framed internal control systems tailored to the nature, size, and complexity of its business. These internal controls encompass various aspects of governance, compliance, audit, control, and reporting. They ensure efficient use and safeguarding of the

Company’s assets, detect and prevent errors and fraud, address evolving risks in the business, prepare reliable and accurate financial reports in a timely manner, maintain accurate and comprehensive accounting records, and ensure stringent compliance with laws and regulations.

The Company periodically monitors adherence to internal controls, ensuring proper documentation and regular evaluation and updation by both internal and statutory auditors. Audit firms appointed by the Company closely oversee and review the efficiency of these internal controls, promptly reporting any discrepancies to the management and Audit Committee for necessary action.

HUMAN RESOURCES & INDUSTRIAL RELATIONS

SILGO- The Original regards its human resources as its most valuable asset and acknowledges their pivotal role in the Company’s growth journey. We undertook a host of initiatives through FY24 to ensure that the work environment fosters high performance, inclusivity, respect and empathy and provides opportunities for growth and development. Its well-crafted HR policies cultivate a culture of competitiveness, work-life balance, and teamwork among employees, ensuring the organisation is future-ready. It strives to create a safe, transparent, and inclusive work environment to enhance employee morale and productivity. The Company advocates for equal opportunities and encourages competitiveness to unlock the full potential of its workforce. The Company places a strong emphasis on training and skill development initiatives to enhance employee capabilities and consistently engage its workforce. It regularly conducts skill development and training programmes across all levels to augment employee competencies. The Company is focussed on nurturing high levels of employee engagement, ensuring consistent performance, and fostering an innovative mindset to mitigate attrition. It organises periodic interactive sessions between management and employees to nurture a growth-oriented culture.

FINANCIAL PERFORMANCE AND BUSINESS OVERVIEW IN F.Y.24:

Profit & Loss Summary

(Rs. in Lakhs)

Year	2024	2023	Growth(%)
Revenue from operations	3503.39	3407.08	(2.83)%
EBITA	552.32	517.04	6.82%
Profit Before Tax	423.40	319.48	32.53%
Profit/(loss) After Tax	315.23	235.17	34.04%

Balance Sheet Summary (Rs. In Lakhs)

Particular’s	As on 31 March 2024	As on 31 March 2023
Equity & Liabilities
Equity Share Capital	1849.68	1027.00
Other Equity	3558.68	2046.75
Non-current liabilities	16.09	309.67
Current liabilities	909.19	1827.87
Total	6333.64	5211.29
Assets
Non-current assets	5.52	6.13
Fixed assets	16.65	20.65
Current assets	6311.47	5184.51
Total	6333.64	5211.29

Equity Share Capital:

The equity share capital of the company has been changed during the year under review.

Debt:

(Rs. In Lakhs)

Particulars	2024	2023
Long term Borrowings	-	295.70
Short Term Borrowings	678.93	1576.10
Total	678.93	1871.80

Changes in Key Financial Ratios:

Pursuant to provisions of Regulation34 (3) of SEBI (LODR) Regulation, 2015 read with Schedule V part B(1) details of changes in Key Financial Ratios is given hereunder:

S.No.	Key Financial Ratio	F.Y. 2023-24	F.Y. 2022-23
1	Debtors Turnover Ratio	3.32	2.14
2	Inventory Turnover Ratio	0.76	1.39
3	Interest Coverage Ratio	4.39	2.69
4	Current Ratio	6.94	20.59
5	Debt Equity Ratio	0.13	0.61
6	Operating Profit Margin (%)	15.65	18.23
7	Net Profit Margin (%)	9.00	9.21
8	Return on Capital Employed	5.82	15.77

*Previous year’s Figures have been regrouped / rearranged wherever necessary.

DISCLOSURE OF ACCOUNTING TREATMENT

The financial statements of the Company have been prepared in accordance with the Indian Accounting Standards (Ind-AS) notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) (Amendment) Rules, 2016 read with Section 133 of the Companies Act, 2013.

CAUTIONARY STATEMENT

The Management Discussion and Analysis may contain some statements describing expected future events, the Company’s objectives, projections, estimates, and financial and operating results which may be ‘forward looking statements’ within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those either expressed or implied in the forward-looking statements depending on various risks and uncertainties. Readers are advised to exercise caution and refrain from placing undue reliance on forward-looking statements.

Therefore, this document is subject to the disclaimer and is qualified in its entirety by the assumptions, qualifications, and risk factors outlined in the management’s discussion and analysis of Silgo Retail Limited’s

Annual Report 2023-24. The Company undertakes no responsibility to publicly amend, modify or revise any forward-looking statements, whether as a result of any subsequent developments, new information, future events, or otherwise.

	For and on behalf of the Board of Directors
	SILGO RETAIL LIMITED
	NITIN JAIN	ANJANA JAIN
Place: Jaipur	Managing Director	Whole-time Director
Date: August 29, 2024	DIN: 00935911	DIN: 01874461