9/7/2015

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Home|Monday,September7,2015|7:15:38PM

FEATURES/WORKINPROGRESS|Apr2,2015|8517views

Brandedjewelleryisthenew
darlingofinvestors
byDeeptiChaudhary,DebojyotiGhosh

Brandedjewellery,especiallywithdiamondinsets,isattractingtheattention
ofinvestors

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In2014,Indiawastheworldsleadingpurchaserofgold,consumingabout880tonnes

FlaunttheVictorinoxSwissArmywatch

Youmightalsowanttoread...
FerozeGujral:Inthebusinessof
astmonth,privateequity(PE)firmCreadorsaidithasinvestedRs135croreina
benevolence
minoritystakeinpubliclylistedDelhibasedjewellerymakersPCJewellerLtd.So
GrowthStory'sBillionDollar
Artsansfrontires
far,consumerserviceswerethesweetspotforCreadoritfocusesonlongterm
Dreams
investmentsinIndia,Indonesia,MalaysiaandSingapore.WiththisdealCreadors
MORE
sixthinIndiathePEfirmmadeitsfirstinvestmentinthejewellerysegment.

Privateequityinvestorshavetraditionallyshiedawayfromcommodityandcommodity
pricedrivenbusinesseslikegoldandsilverjewellerybecausegeneratingmarginsisnot
easyinsuchsectorsitisnotpossibletochargemorethananacceptedamountwhenthe
commodityistradedonadailybasisandcustomersareawareoftherates.
However,overthepasttwoyears,therehasbeenanincreaseininvestorinterestinthe
jewellerybusinessinIndia:In2014,therewereninesuchtransactionsworth$277
million,comparedtofourdealsworth$35millionin2013.
Thereasonforthisnewfoundinterestliesinthefactthatgrossmarginsarehigherin
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jewellerybusinessesthataredesignled.Also,massiveprofitscanberegisteredby
offeringamixofgoldanddiamondjewellery.
Whenyouaddbeautyanddesigntojewellery,itisnotacommodity.Itbecomes
aspirational,artisticandbranddriven,saysGauravSinghKushwaha,founderandchief
executiveofonlinejewellerycompanyBlueStone.Weseejewelleryasanornamentand
thatswherehighmarginscomeintoplaythefundamentalvalueofthebusinessisvery
high.
BlueStone,foundedin2011,hasbeenbackedbyRatanTata,chairmanemeritusofTata
Sons,apartfromAccelPartners,KalaariCapital,SaamaCapitalandMeenaGanesh.It
hassofarraised$15millionovertworoundsofinvestments.InFY2014,thecompanys
revenuesgrewfourtimestoRs17croreitisexpectedtotouchRs70croreforFY15.
AccordingtoKushwaha,marginsarenotmorethan35percentingoldcoinsandbars.
Butforfinishedbrandedjewellery,themarginsarebetween25and35percent.
Internalrateofreturn[IRR]forcompanieslikeus,basedonthevaluationoveraperiod
oftime[thepasttwotothreeyears],isanywherebetween70and80percent.

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MridulArora,vicepresidentofSAIFPartners,whichinvestedinSencoGoldLtd,says
designsareaformidabledifferentiatorandmargincreatorswhenitcomestojewellery.
InOctober2014,SAIFPartnersinvestedRs80croreinKolkatabasedSencoGold,one
ofthelargestjewelleryretailchainsinEasternIndia.It[jewellery]isaveryprofitable
retailformatitsthemostprofitableretailbusinesspersqftfromthepointofviewof
margins,saysArora,addingthatthedemandforjewelleryhasbeensteadyforthelast
twodecades.
In2014,Indiawastheworldsleadingpurchaserofgold,consumingabout880tonnes,
saysareportpreparedinconjunctionwithGoldFieldsMineralServices(GFMS)
analystsatThomsonReuters.Thiswasatatimewhenglobaldemandforgoldfellby
18.7percent.
Diamonds:AJewellersBestFriend
However,evendesignledjewellerywithgoldalonecannotgiveinvestorsthedesired
returnsof2025percentasdaytodaytradingpricessetthevalueoftheornament
makingchargesanddesignalonecannotgenerateapremiumofmorethan18percent.
Butadddiamondstogold,andthestonesalonecanbringinmarginsof100percenttoa
whopping8,00,000percent.
Unlikemetals,itisverydifficulttoputapriceondiamonds,evenifyougetthem
assessedoncaratage,colourandclarity.Thevalueofthesestonesdependsontheir
source,andontherarityoftheircolourandsize.Inthehandsofarenowned
diamantaire,thepriceshootsuptoafewcrores.
Diamondsarehugevaluecreators.Pricingofdiamondsisbasedonhowoneusesitin
thejewellery.Ifusedimaginatively,itcanfetchattractivepremiums,saysAnand
Narayan,seniormanagingdirector,CreadorAdvisorsIndia.Thatsthemostattractive
partofthesebusinesses,withmarginsthatcanbemassive.
Whenitcomestodiamonds,jewellerstypicallybuylargestonesthatarethencutinto
smallerpieces.Allthesesmallerpiecesarethensoldatvariouspricepoints.Thewaste
thatisproducedduringthecuttingofdiamondsisalsoputtouse,andisoftenusedin
bangles.Youchargethecustomerforthesediamonds[whichareactuallyawaste],
saysNarayan.
PCJewellerhasdemonstratedagrowthof46percentcompoundannualgrowthrate
(CAGR)inprofitaftertaxbetweenfiscalyears2010and2014,drivenbyanincreasing
proportionofdomesticsalesanddiamondmix.Ithasanaveragereturnonequity(RoE)
of34.7percentoverthelastfiveyears.
BrandValue
Only20to25percentofthejewellerymarketinIndiaisorganised,includingcompanies
likeTanishqandGitanjali.Expertssaythereisaviableopportunitytobuildbranded,
designledjewellerybusinesseshere,onbothonlineandofflineplatforms.Investorstoo
arebullishaboutboththeseformats.
Acapacitytosellintricate,complexdesignsingoldanddiamondcandrivethemargins
up.Yourbrandalsodrivesmargins.Organisedfirmshavehighermarginsbecauseofthe
makingcharges,saysAroraofSAIFPartners.

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Butbuyinggoldisnotwhatitusedtobeacoupleofdecadesago.About1520yearsago,
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ForbesIndiaMagazineBrandedjewelleryisthenewdarlingofinvestors

jewellerywasseenonlyasinvestment,butthatmindsetischanging,saysHarminder
Sahni,founderandmanagingdirector,WazirAdvisors,aretailconsultingfirm.
Customersarenowmoreopentothefashionaspectofjewelleryanddonotwantto
spendalotonpuregold[18or22carat]jewellery,hesays.
Inthefashionjewelleryspace,typicallytheticketsizeisbetweenRs1,500andRs2,000.
InBlueStone,forexample,theyaretalkingaboutdesignbasedfinejewellerywithan
averageticketpricebetweenRs15,000andRs20,000.Itismoreofabrandthatyou
arecreatingandpeoplespecificallylookforyourdesignsandbrandandthatswhatwe
want,saysMeenaGanesh,promoterandinvestor.
Goldisnowafashionaccessory.Fashionisnotdying.Itisthecustomersneedtolook
beautiful,toflaunt.Thenatureofthebusinessmaychange,butrequirementsforluxury,
fashionarenotgone,saysVasudevanofCreador.CustomersintheUSarebuying12
caratjewellery.ItwillcometothatinIndiasoon.
ThisarticleappearedintheForbesIndiamagazineissueof03April,2015
Keywords:Brandedjewellery,PCJewllerLtd,PrivateEquity,OnlineJewellerycompany,BlueStone,Ratan
Tata,SencoGoldLtd,Diamondjewellery,GoldFieldsMineralServices,Tanishq,Gitanjali,Fashion

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