Rajesh Exports Ltd. (RJEX), India’s largest
gold jewelry exporter, is spending 18 billion rupees ($328
million) on retail expansion locally to sustain growth and
counter declining demand in the U.S. and Europe.
The company will enter the three southern Indian states of
Kerala, Tamil Nadu and Andhra Pradesh after almost doubling the
number of outlets in its home province of Karnataka to 150 by
March, Chairman Rajesh Mehta said in an interview, without
giving a timeline for his investment plan. The exporter aims to
boost the
share of revenue from domestic sales to 50 percent in
four years from 5 percent, he said.
Bangalore-based Rajesh Exports, which counts Goldman Sachs
Group Inc. among its
investors, is seeking to tap a market
undeterred by a 12-year rally in prices of the yellow metal as
festivals and weddings traditionally fuel purchases considered
auspicious in India. The most recent World Gold Council data
show consumer demand in the world’s biggest bullion importer
climbed 9 percent in the quarter to Sept. 30 even as global use
declined 11 percent.
“In India, it is a compulsion to buy gold more than
anything else,” said
Kishore Narne, head of commodities and
currency at Motilal Oswal Commodity Broker Pvt. Ltd. “I am not
seeing any significant cut down in jewelry demand.”
Profit Outlook
Profit growth at Rajesh Exports may slow to 30 percent to
35 percent in the 12 months to March 31 after an average growth
of 72 percent in the previous three financial years, while sales
may increase 25 percent, amid weak overseas sales, according to
Mehta. Net income last year was 4.12 billion rupees ($75
million) and revenue was 256.5 billion rupees.
“That is an appreciable growth and most of this will come
from the retail segment,” Mehta said.
Shares of the company gained 11 percent in 2012, trailing a
26 percent advance in the benchmark BSE Ltd.
Sensitive Index. (SENSEX)
The stock fell 0.6 percent on Jan. 11, extending this year’s
loss to 5.5 percent, to 131 rupees, according to data compiled
by Bloomberg. The shares started trading in Mumbai in 1995.
With the planned expansion, Rajesh Exports’ outlets under
the brand of Shubh Jewellers will compete against Tanishq stores
run by
Titan Industries Ltd. (TTAN), India’s largest maker of branded
jewelry by market value, and
Gitanjali Gems Ltd. (GITG), the owner of
Nakshatra, Gili and D’Damas brands.
Plain, Studded
The jewelry market in India is valued at $16 billion to $18
billion, according to Firstcall India Equity Advisors Pvt.,
while New Delhi-based consultants
AM Mindpower Solutions
estimate sales of gold ornaments may reach $41.3 billion in
three to four years.
Southern India accounts for 45 percent of the total jewelry
business in the country and is poised to be the fastest growing
market, according to Firstcall. While Tamil Nadu and Kerala are
known for plain gold jewelry, Andhra Pradesh and Karnataka have
emerged as markets for studded ornaments.
Jewelry purchases in the U.S. fell 6.8 percent to 68.2 tons
in the first nine months of 2012 from a year earlier, while in
Europe, excluding CIS countries, demand slipped 11 percent,
according to data provided by the World Gold Council.
A decline in gold prices may increase jewelry sales in
India, said Motilal Oswal’s Narne. Rates in India climbed 13
percent in 2012, exceeding a 7 percent gain overseas, as a
weaker rupee added to the imported cost of the yellow metal.
Gold in Mumbai has dropped 5.1 percent from a record 32,464
rupees per 10 grams touched on Nov. 26.
“There are a lot of people sitting on the sidelines
waiting for a price correction,” Narne said. “If a company is
involved in consumer jewelry business, they might get their
share of upswing towards the end of the year” as the festival
and wedding season picks up.
Not Just Yet
The export market can’t be written off just yet as an
economic recovery in the U.S. could spur a rebound, Vipul Shah,
chairman of the
Gems & Jewellery Exports Promotion Council, said
by phone from Mumbai, predicting growth of as much as 20 percent
in the year ending March 31.
“The U.S. economy is recovering, which we can see from the
positive economic data coming out from the country these days,”
he said. A revised report by the U.S. Department of Commerce
showed that the world’s biggest economy expanded 3.1 percent in
the third quarter, exceeding the highest projection in a
Bloomberg survey.
India shipped $16.52 billion rupees worth of gold jewelry
in the year ended March 31, according to the trade body.
Own Refinery
Rajesh Exports, which established its manufacturing
facility in Bangalore in 1990, procures raw gold from various
parts of the world and refines the metal in its own factory in
the northern state of Uttarakhand with an annual capacity of 400
tons. It has wholesale distribution networks in cities including
New York,
Chicago, Toronto, Zurich and Sydney.
“The company purchases gold directly from the mines and
sells it directly to the customer,” said Nagaraju Airruva, an
analyst at Firstcall in Mumbai. “So they provide at a
competitive rate.” He maintains a buy rating on the stock with
a target price of 147 rupees a shares.
The
cost of materials consumed in the year ended March 31,
2012 stood at 250 billion rupees, almost 98 percent of the
revenue from operations, according to figures on the company’s
website, squeezing margins after expenses and tax. The so-called
EBITDA margin for the company in the year was 0.07 percent,
compared with 9.5 percent at the jewelry retailer Titan.
Gold jewelry exports from
India climbed 23 percent to $13.2
billion rupees in the eight months through November, according
to the
Gems & Jewellery Export Promotion Council data.
Import Duty
Imports of the metal widened India’s current-account
deficit to a record $22.3 billion in the quarter to Sept. 30,
prompting policy makers to consider higher duties for a second
time in a year. The government last doubled taxes on bars and
coins in March to 4 percent.
“We may be left with no choice but to make it a little
more expensive to import gold,” Finance Minister Palaniappan Chidambaram said on Jan. 2.
Inbound shipments may have dropped to an estimated 750 tons
in 2012, from a record 969 tons the previous year, Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade
Federation said the same day. The imports accounted for 80
percent of the deficit in the broadest measure of trade, a
central official said in November. The shortfall has weakened
the rupee against the dollar.
Chidambaram may raise the import duty to 6 percent, Bamalwa
said. That may still fail to deter Indian consumers, Mehta said.
“Buying pattern of gold in India is not dictated by the
price,” Mehta said. “There may be a lull for some time but
demand will rebound within a few days.”
To contact the reporters on this story:
Swansy Afonso in Mumbai at
safonso2@bloomberg.net;
Malavika Sharma in New Delhi at
msharma52@bloomberg.net
To contact the editors responsible for this story:
James Poole at
jpoole4@bloomberg.net;
Grant Clark at
gclark@bloomberg.net
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