g&j industry - an icra perspective - july 2012
TRANSCRIPT
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7/31/2019 G&J Industry - An ICRA Perspective - July 2012
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Indian Gems & Jewellery Industry: An ICRA Perspective
Mumbai July 12, 2012ICRA Limited An Associate of Moodys Investor Services
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Presentation Flow
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited
An Associate of Moodys Investor Services
1 Indian Gems and Jewellery (G&J) Industry Structure & Overview
2 Indian Cut and Polished Diamond (CPD) Industry Structure & Overview
3 Indian CPD Industry Key Credit Risks & Mitigating Factors
4 Indian CPD Industry Key Figures and Trends
5 Indian Jewellery Industry Structure & Overview
6 Indian Jewellery Industry Key Credit Risks & Mitigating Factors
9 Key Credit Metrics for G&J industry
8 ICRA Rated CPD Companies Key Financial Trends
7 ICRAs Rating Category Profile
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1. Indian G&J Industry: Structure & OverviewStructure & Overview
G&J industry comprises of diamonds, precious and semi-precious stones,gold, silver, studded costume jewelleryMostly unorganized and employs around 3.5 million peopleG&J industry contributed around 14% of Indias total exports in FY12Main component of Indias G&J exports is cut and polished diamonds (CPDs);contribute around 70% of the countrys G&J exports
Jewellery contributes approximately 20-25%; balance from precious stonesThe total G&J industry exports were recorded at USD 42.8 billion in FY12 ascompared to USD 42.9 billion in FY11; though in dollar terms there was amarginal drop of 0.36%, the exports marked an increase of 4.6% in rupeevalue
CPD witnessed a decline of 16.3% with exports decreasing from USD 27.7billion in FY11 to USD 23.2 billion in FY12Gold jewellery exports registered an increase of 30% with exports growingfrom USD 12.7 billion in FY11 to USD 16.5 billion in FY12
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited
An Associate of Moodys Investor Services
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2. Indian CPD Industry: Structure & Overview (Contd )
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited
An Associate of Moodys Investor Services
RoughProcurement
Suppliers: De Beers / DTC (South Africa & Botswana), Alrosa (Russia), RioTinto (Australia), BHP Billiton (Canada); De Beers and Alrosa account for 70%of worlds annual production
Nature of Contracts: Long Term Contracts, Auctions and Spot Sales Pricing: Driven by supply and level of dealer speculation
Cutting andPolishing
Skilled Manpower: Focus on Asia, primarily India and China Latest Machinery: Rough Planners and Laser Cutting Machines Systems and Processes: IT back-up to track the entire business process
PolishedDiamond
Sales
Key Customers: CPD Traders, Jewellery Manufacturers, Retail Chains Key Destinations: US, Israel, Belgium, Hong Kong, EU, UAE and India
Sales Channels: Direct Sales, Online Sales, Marketing Associates Pricing: Driven by consumer demand as well as four Cs - Cut, Color, Clarityand Carat
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3. Indian CPD Industry: Key Credit Risks and Mitigating Factors
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited
An Associate of Moodys Investor Services
Rough Procurement Stage
Key Credit Risks: Access to quality and consistent
rough supply High bargaining power of
suppliers
Rough Procurement Stage
Key Mitigants: Reduced dominance of DTC with emergence
of alternative suppliers Sightholder Status (esp. supplier of choice)
with DTC; tie-ups with multiple minersleading to diversification of supply side risks
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3. Indian CPD Industry: Key Credit Risks .(Contd)
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited
An Associate of Moodys Investor Services
Cutting and Polishing Stage
Key Credit Risks: Low technology absorption
Cutting and Polishing Stage
Key Mitigants:
Increasing use of latest technology byincumbents
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3. Indian CPD Industry: Key Credit Risks .(Contd)
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited
An Associate of Moodys Investor Services
Polished Sales Stage
Key Credit Risks: Demand and Pricing Stiff Competitive Pressures Geographic Concentration Client Concentration Low debtor and inventory turnover
Polished Sales Stage
Key Mitigants:
Responsiveness to the market conditions Product diversification with focus on value based
manufacturing Diversification of revenues - geography-wise & client-
wise Rising use of online sales mode
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3. Indian CPD Industry: Key Credit Risks .(Contd)
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited
An Associate of Moodys Investor Services
Others
Key Credit Risks: Lack of professional management set-up Business constitution as a partnership; risk of
capital withdrawals Revenues and profitability susceptible to
adverse movements in foreign exchange rates
Others
Key Mitigants:
Long experience of promoters andestablished track record of operations
Professional management set-up in somecompanies
Limited capital withdrawals Natural hedging mechanism
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4. Indian CPD Industry: Key Figures & Trends
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited
An Associate of Moodys Investor Services
Exports FY10 FY11 FY12
CPD Exports (USD billion) 15.8 27.7 23.2
Growth (%) - 74.8% -16.3%
CPD Export volumes (in lakh carats) 485.9 647.4 517.3
Growth (%) - 33.2% -20.1%
Average CPD Realisation (USD) 324.3 426.7 449.7
Growth (%) - 31.6% 5.4%
Imports FY10 FY11 FY12
Rough Imports (USD billion) 8.8 11.9 15.0
Growth (%) - 34.4% 26.3%
Rough Import volumes (in lakh carats) 1492.2 1539.8 1308.1
Growth (%) - 3.2% -15.1%
Average rough cost (USD) 59.6 77.9 118.0
Growth (%) - 30.6% 51.5%
Source: GJEPC and ICRA Research
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4. Indian CPD Industry: Key Figures & Trends (contd)
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited
An Associate of Moodys Investor Services
0
100
200
300
400
500
600
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
A p r - 0 8
M a y - 0
8
J u n - 0
8
J u l - 0 8
A u g - 0 8
S e p - 0
8
O c t - 0
8
N o v - 0 8
D e c - 0 8
J a n - 0
9
F e b
- 0 9
M a r - 0
9
A p r - 0 9
M a y - 0
9
J u n - 0
9
J u l - 0 9
A u g - 0 9
S e p - 0
9
O c t - 0
9
N o v - 0 9
D e c - 0 9
J a n - 1
0
F e b
- 1 0
M a r - 1
0
A p r - 1 0
M a y - 1
0
J u n - 1
0
J u l - 1 0
A u g - 1 0
S e p - 1
0
O c t - 1
0
N o v - 1 0
D e c - 1 0
J a n - 1
1
F e b
- 1 1
M a r - 1
1
A p r - 1 1
M a y - 1
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J u n - 1
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J u l - 1 1
A u g - 1 1
S e p - 1
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O c t - 1
1
N o v - 1 1
D e c - 1
1
J a n - 1
2
F e b
- 1 2
M a r - 1
2
Exports US$ million LHS Avg. realisation US$ RHS Linear (Avg. realisation US$ RHS)
FY09 FY10 FY11 FY12
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4. Indian CPD Industry: Key Figures & Trends (contd)
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited
An Associate of Moodys Investor Services
0
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140
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180
0
200
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1,000
1,200
1,400
1,600
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2,000
A p r - 0 8
M a y - 0
8
J u n - 0
8
J u l - 0 8
A u g - 0 8
S e p - 0
8
O c t - 0
8
N o v - 0 8
D e c - 0 8
J a n - 0
9
F e b
- 0 9
M a r - 0
9
A p r - 0 9
M a y - 0
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J u n - 0
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J u l - 0 9
A u g - 0 9
S e p - 0
9
O c t - 0
9
N o v - 0 9
D e c - 0 9
J a n - 1
0
F e b
- 1 0
M a r - 1
0
A p r - 1 0
M a y - 1
0
J u n - 1
0
J u l - 1 0
A u g - 1 0
S e p - 1
0
O c t - 1
0
N o v - 1 0
D e c - 1 0
J a n - 1
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F e b
- 1 1
M a r - 1
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A p r - 1 1
M a y - 1
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J u n - 1
1
J u l - 1 1
A u g - 1 1
S e p - 1
1
O c t - 1
1
N o v - 1 1
D e c - 1 1
J a n - 1
2
F e b
- 1 2
M a r - 1
2
Imports US$ million LHS Avg. cost US$ RHS Linear (Avg. cost US$ RHS)
FY09 FY11FY10 FY12
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5. Indian Jewellery Industry: Structure & Overview
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited An Associate of Moodys Investor Services
Key Customers:
Wholesalers andRetailers Key Destinations:
Domestic and Exportmarkets
Sales Channel:
Online and Retail Pricing: Ruling gold
prices plus makingcharges
Type of Jewellery: Standard and Studded
Process: Machine-madeand Hand-made
Suppliers: MMTC, Banksand Bullion Traders
Nature of contracts: Spot and Metal gold loan
Pricing: Market driven
Goldprocurement
Processing of Gold intoJewellery
Jewellery Salesto
Intermediaries
Jewellery Salesto final
customers
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6. Indian Jewellery Industry: Key Credit Risks and MitigatingFactors
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited An Associate of Moodys Investor Services
Gold Procurement Stage
Key Credit Risks: High volatility in gold prices Adverse foreign exchange fluctuations Major raw material requirements need to be
imported; stocking of huge quantities of gold leadsto high inventory carrying costs
Gold Procurement Stage
Key Mitigants:
Back-to-back contracts Hedging against exchange risks Flexible manufacturing process
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6. Indian Jewellery Industry: Key Credit Risks and MitigatingFactors .(Contd)
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited An Associate of Moodys Investor Services
Manufacturing StageKey Credit Risks:
Ability to manufacture varied designs in response tofast evolving market trends
Manufacturing Stage
Key Mitigants:
Strong team of designers backed by latestmachinery
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6. Indian Jewellery Industry: Key Credit Risks and MitigatingFactors .(Contd)
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited An Associate of Moodys Investor Services
Sales StageKey Credit Risks: Highly unorganised industry leading to stiff
competition High rentals
Sales Stage
Key Mitigants:
Widening of product portfolio through innovativeofferings; focus on branding and hallmarking Increasing presence through expansion of retail stores,
majorly targeting tier 2 and 3 cities
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7. ICRAs Rating Category Profile
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited An Associate of Moodys Investor Services
ICRA Rates over 180 companies in the gems and jewellery sector with a healthy mix of CPD and
jewellery companiesWithin the CPD space we rate both traders as well asmanufacturers; on the jewellery front, we covermanufacturers, wholesalers as well as retailersIn India, most of the leading jewellery retail companiesare backward integrated into manufacturing whichgives cost advantage in a highly competitive market
At the wholesaler level, typically margins are extremelylow at 1-3% at operating levelAt the retail level, margins at the operating level couldbe upwards of 12-15%
A4% BBB
28%
BB58%
B7%
C1%
D3%
Rating Category Profile:
CPD + Jewellery entities
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8. ICRA Rated CPD Companies Key Financial Trends
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited An Associate of Moodys Investor Services
64.6
84.592.0
92.4
147.2
5.5%5.0% 4.9%
4.6% 4.3%
1.5% 1.5%
0.5%
1.5%
1.9%
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Operating Income (Rs. crore) Operating Margin (%) Net Margin (%)
ICRA Rated CPD Companies - Trend of Revenues, OPM & NPM
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8. ICRA Rated CPD Companies Key Financial Trends .(contd)
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited An Associate of Moodys Investor Services
1.8
1.71.5
2.0 2.0
0.0
0.5
1.0
1.5
2.0
2.5
FY07 FY08 FY09 FY10 FY11
ICRA Rated CPD Companies: Trend in OPBDITA/Interest andFinance Charges
OPBDITA / Interest andFinance Charges
5.0%6.3%
2.4%
6.6%
8.4%
0.0%
1.0%
2.0%
3.0%4.0%
5.0%
6.0%7.0%
8.0%
9.0%
FY07 FY08 FY09 FY10 FY11
ICRA Rated CPD Companies: Trend in NCA/Total Debt
NCA/Total Debt
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8. ICRA Rated CPD Companies Key Financial Trends .(contd)
Indian Gems and Jewellery Industry: An ICRA PerspectiveMumbai - July 12, 2012ICRA Limited An Associate of Moodys Investor Services
1.9 1.8 1.9
1.5 1.61.8 1.8
1.2
2.02.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
FY07 FY08 FY09 FY10 FY11
ICRA Rated CPD Companies: Trend in Capital Structure andInterest Coverage
Gearing
PBIT / Interest andFinance Charges
51%45% 48%
43% 41%
0%
10%
20%
30%
40%
50%
60%
FY07 FY08 FY09 FY10 FY11
ICRA Rated CPD Companies: Trend in Working CapitalIntensity
NWC/OI
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Thank You
Indian Gems and Jewellery Industry:An ICRA Perspective
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