Though the Reserve Bank of India has raised concerns over the country’s huge gold imports, nothing can prise away Indian consumers’ love for the yellow metal.

High prices notwithstanding, the milling crowd at the India International Jewellery Show in Mumbai put to shame any talk of a recession in the country.

In a bid to contain the citizens’ passion for the precious metal, the Government has already imposed four per cent duty on gold imports. But the scene at the Jewellery show, where 800 exhibitors displayed their wares across 1,800 stalls, was reminiscent of a gold rush, with over 500 exhibitors being shown the door due to space constrains.

The encouraging financials posted by most leading jewellery companies in the June quarter has also underscored the optimism in the sector.

Mehul Choski, Chairman and Managing Director, Gitanjali Group, is confident that the bond between gold and the Indian consumer will continue to remain strong and that jewellery demand in India will not suffer.

“It is a very simple reason – no wedding in India is solemnised without gold. The potential is huge, as millions of youth wait for D-day,” he said in an interview with Business Line .

Excerpts from the interview:

What are the growth drivers this quarter?

In the last nine months, we have extended our reach to new markets by appointing franchises and opening new stores, especially in tier-II and tier-III cities. The point of sale for our products has gone up by around 100 in the last three quarters. The product mix between diamond and gold jewellery was also altered, according to consumer preference.

These initiatives have started yielding desired results. We have witnessed more people in smaller towns showing an interest in buying branded diamond jewellery as it offers better design and quality.

How is the demand in the global markets?

Contrary to general belief, demand in key emerging markets such as West Asia, US, China and Japan where we have a significant presence has been good. In fact, we are strengthening our presence in these countries.

We launched a 2,000 sq ft multi-brand jewellery store in Dubai. With this, our products will be available in four standalone stores and 50 shop-in-shops in Dubai.

Similarly, we opened our first outlet in Singapore last month. In China, we are catering to the need of 25 stores, but we clearly want to establish our brand soon. It is relatively easier to establish a brand in an emerging market, than doing it in a developed country. That is the reason we are looking at organic growth in China.

What is the strategy behind acquiring a stake in a Japanese firm?

We acquired a 15 per cent stake in the Japanese firm Verite for Rs 25 crore. Verite is a Tokyo Stock Exchange-listed company. The company will source up to 50 per cent of its requirement from us. This deal will give us an opportunity to understand the needs of the Japanese market better. Verite has 100 retail outlets. The overseas markets provide 50 per cent margin for branded jewellery as compared to 25 per cent in India. We also own 30 per cent stake in Gems TV, a channel that sells jewellery in Japan.

What is your expansion plan?

We have identified 600 towns and cities which have huge potential for growth. At present, we have a presence only in 300 of these places. Till now, we have concentrated on selling our jewellery through other retailers, which is known as a push-strategy in marketing parlance.

We are slowly switching our strategy to pull-format, whereby we would want customers to get attracted by our brand and design. The margins are much higher if we sell it through our own brand. All these initiatives will result in pushing up return on capital employed to 28-30 per cent this year as compared to 22-24 per cent achieved last year.

What prompted reorganisation of group holding?

Over the years, each of our brands has grown in size. We thought that it is the right time to unlock its potential. So we have brought three Indian brands under a new company – Gitanjali Brands. The international business will come under our Hong Kong subsidiary – Aston Luxury Group. We may also consider listing each of our brands at a later stage.

How do you intend to utilise the Rs 39 crore raised from the Dainik Bhaskar Group?

It was a private placement to fund our various promotional and marketing activities. As we are a brand-driven company, we need to invest regularly on promotional events to showcase our products.

How do you see gold demand panning out?

There are three parts to gold demand. This includes jewellery, investment and industrial demand. The general slowdown in the economy has affected investment and industrial demand. But the offtake by the jewellery sector is still strong.

The recent rise in gold prices despite the economic turbulence in the last few months has enhanced people’s confidence in the yellow metal. With the wedding season round the corner, I expect sales to pick up, especially that of diamond jewellery.

suresh.iyengar@

thehindu.co.in

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