Unfavourable regulatory moves increase the risk for the jewellery industry.

With equities markets relentlessly yo-yoing, fixed deposits present a much safer option. Gitanjali Gems, which exports jewellery and retails it in India, US, and Japan, is offering attractive interest rates on fixed deposits. But these deposits come with sizeable risk attached. With safety in mind, we recommend you to not invest in them as it may not suit the risk appetite of a fixed deposit investor.

The offer

On one-, two- and three-year deposits, Gitanjali offers annual interest rates of 11.5, 12 and 12.5 per cent, respectively. In the non-cumulative option, interest will be paid out on a quarterly basis. In the cumulative option, interest will be compounded quarterly and paid out at maturity. The minimum amount to be invested is Rs 25,000 and in multiples of Rs 1,000 after that.

Across the above time-frames, private and public sector banks offer rates only in the range of 8.5 to 9.5 per cent.

Among corporate fixed deposits as well, Gitanjali’s rates are among the highest. Even so, you need not invest in this offer. The jewellery industry is facing troubling times, contending with regulatory moves to restrict gold purchases, currency risk, stretched working capital cycles and a wary consumer. Besides, Gitanjali’s fixed deposit scheme is not rated by a credit rating agency making comparison of its risk-return prospects difficult.

Growing category

Gitanjali manufactures, retails and exports diamond and gold jewellery. Branded jewellery, which is a nascent but growing category in Indian markets, offers better margins than the unorganised segment.

Gitanjali has strong national brands in Nakshatra, Gili, D’damas and Asmi, and many more. It has a wide retail presence, using a mix of franchisees and owned stores to expand quickly.

The domestic business accounts for around 58 per cent of revenues. The remaining is taken up by exports and retail operations in the US, Japan and West Asia. Growth in these countries has picked up in the past couple of quarters.

However, Gitanjali’s working capital cycle, already long, has further stretched in the 2012 fiscal, calling for more funding. The company also has external commercial borrowings, taken to pay off foreign-currency bonds, also in fiscal 2012. The company’s debt levels have been steadily creeping up. The margin by which operating profits cover interest payments has also been shrinking.


What adds most significantly to business risk is recent regulatory action aimed at curbing domestic gold buying. Restrictions on imports by banks, from which jewellers source gold, and higher import duties throw availability of gold supplies into question. Domestic gold premiums could also rise, driving up raw material costs and thus result in lower margins.

Meanwhile, restrictions on buying gold bars and coins from jewellers themselves and credit card companies can dampen consumer demand. More than half Gitanjali’s sales stem from gold jewellery.

With multiple issues weighing down the sector, investors are advised against investing in Gitanjali’s fixed deposit scheme.


(This article was published on July 6, 2013)
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