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2013-2014 Guide to the Jewellery Market in India December 2013
Equity Communications
Diamond Market Specialists
Methodology
We use secondary data for our research. We mine raw data going back at least forty years in our analysis
and this data and information is extremely useful in our work. These are some of the sources we mine:
• International statistics data provided by the OECD, IMF, various departments of the United Nations
• International statistics data provided by USA government departments such as the Bureau of
Economic Analysis and Federal Reserve Banks
• International statistics data provided by EuroStat
• National statistics offices in China, Hong Kong, India, USA, Japan, Switzerland, Zimbabwe,
Australia, UK • Proprietary research by leading global financial institutions such as Goldman Sachs, Amundi,
Nomura, Credit Suisse and JP Morgan
• Proprietary research by leading regional financial institutions and brokerage firms in China, Hong
Kong, Japan and India
• Industry promotion bodies such as the world Gold Council and the Silver Institute
• Annual reports and investor presentations by a core group of 150 public companies countries from
India, Hong Kong, China, Europe, USA, Australia, Canada, South Africa, South East Asia and
Zimbabwe. T h es c omp an ie s operate in various industries including the diamond industry, luxury
goods industry, precious jewellery retailing industry and general retailing
• Earnings call transcripts which are extremely useful
• Industry trade publications
• International and regional financial news organisations
Nevertheless, analysis of data and trends is an art. For the most part, our researchers at Equity
Communications are our greatest asset.
In the following pages, you will discover our views on the consumption of precious jewellery in India as
well as discover our ideas on the likely direction of such consumption in the future. You will also get to
find out why we selected India as the most promising market for precious jewellery for many years to
come.
For our purposes, we define precious jewellery as jewellery pieces made of gold, platinum or silver, in
their pure form or combined with other lesser metals like copper. Such jewellery pieces can be in plain
form or gemset precious jewellery. In the gemset category, this report provides extended study of polished
diamonds consumption in India.
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Acknowledgements and Disclaimers
Acknowledgements 2013.
2013-2014 Guide to the Jewellery Market in India is based on information available up to the end of October 2013 for
the most part.
2014 Guide to the Jewellery Market in India is based on research by the Diamond Indus y Research Team at
Equity Communications: Tinashe Takafurna, Gerald Manyengavana, Musafiri Chisaka and Fred Divine.
Please Note The views expressed herein are solely those of Equity Communications as of the date of this report and are subject to
change without notice. Data Tables, Survey Results and Financials provided in this report are not intended, nor
implied, to be a substitute for the professional advice you would receive from a qualified accountant, attorney or
financial advisor. Always seek the advice of an accountant, attorney or financial advisor with any questions you may
have regarding the decisions you undertake as a result of reviewing the information contained herein. Nothing in this
report should be construed as either investment advice or legal opinion.
General Disclaimer This document is produced and circulated for general informational and educational purposes only. It is provided by
Equity Communications. Equity Communications research utilizes data and information from public, private and
internal sources. While we endeavour to keep the information up to date and correct, we make no representations or
warranties of any kind, express or implied, about the completeness, accuracy, reliability, or suitability of this
publication. The information and analysis contained in this publication has been compiled or arrived at from sources
believed to be reliable but Equity Communications does not make any representation as to their accuracy or
completeness and does not accept liability for any loss arising from the use hereof. Furthermore, the material
contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any
specific recipient or organisation. It is not to be construed as a solicitation or an offer to buy or sell any commodities,
securities or related financial instruments.
For more information, please visit h t W / - . d i a m o n d s h a d e s . c o m /
C Copyright 2013, Equity Communications Private Limited, ALL RIGHTS RESERVED.
For more information please contact:
Tinashe Talafuma Head of Research tinashe. takafumac:diamondshades. com
N Iv.diamondshades.com
Table of Contents
2013-2014 Guide to the Jewellery Market in India
by Tinashe Takafuma
Summary
Local Economy
Demographics
Market Profile
Appendix
page 5
page 7
page 9
page 1 2
page 30
Equity
Communications
Diamond Market Specialists
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India Nomilial GDP 1980-2018
IIldia Real GDP Grciwwth rate 19
liidia Real GDP and CPI Inflation 2000-2018
11idia's Total Wealth 20 GO-2013
80-2018
11idia GDP per Capita 1980-2018
1ndia's Wealth Irer Adult 2000-201
1iidia
3 '
Population Projections for liidia 2000-203G t)rbanilatic}ii
Prospects for liidia 199G-2030
S Adult Wealth Pattern 2010-2013
Adult Population for IIldia 2000-2013
Crude Birth Rite fc:r India 19
Population Below 15 years (From 25 }ears ago to present)
Total Fertility I ite for India 1980-2030
80-2030
Age at f i r s t Marriage for Females
limlilciy`ment Grciwwth fc:r India 1990-2013
Labour Productivity Grci'r
Retail Sales of Precious ,Jeweller
th for India 1990-2013
Private C iiisumptioii Grciwth for India 2006-2013
Indian Rupee Cross-rates 2003-2013
v
Gold and Diamond Demand by Region
2002-2012
Retail Sales of Gold ,Jewellery in India 2002-2012
Gold,Jewellery~ Demaiid'1'rends iii India 2003-2013
Gold Price in India Rupees and US$ 1993-2013
Retail Sales of Diamond ,Jew'eller in India 2002-2012
Diamond ,Jewellery- Demand by Region
Diamond ,Jeweller - Market Share of Sales in India
C(:insuiripticlii Bretikdc wn for Diamond ,Jeweller in India
Market Share; Organized Retail versus Informal 2006-2016
Quarterly Gold Demand for,Je vellery in India 2010-2013
Quarterly Retail Sales of Gold ,Je vellery in India 2012-2013
2013 Retail Sales of Precious ,Je vellery- iii India (Rupees)
2013 Retail Sales of Precious ,Je vellery- iii India (US$)
Titan Industries ,Je'vellerv Division
'Para Jewels
'friblicivandti_s RliiInji Zaveri ('I'BZ)
Re enue Gr(mth (selected retailers)
page 12
page 12
page 14
page 14
page 15
page 1(
page 17
page 17
page 17
page 18
page 20
page 23
page 23
page 23
page 30 page 32
page 33 page
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page 7
}age 7
page 7
page 7
page 8
page 8
page 8
page 9
page 9
page 9
page 10
page 10
page 10
page 10
page 11
page 11
page 11
page 11
India: Summary of Jewellery Market in 2013-2014
India is currently number t TO in gold jewellery consumption by p
jewellery consumption by volume and number one in diamond jewellery consumption by volume. The lume, number four in platinum
country will remain the most important market for precious jewellery in terms of potential for mmiy years
to come, For one, demand for precious jewellery is already formidable because of strong cultural
traditions and yet more than 90% of adults in India possess wealth valued below U S$10,000.
With further economic growth, a large number of Indians will move to higher wealth e n d s and this will
lead to an acceleration of precious jewellery consumption.
However, that is a story for the future, In the present, consumption of precious jewellery in India gained
momentum in the aftermath of the Global Financial Crisis as Indians rode the wave of gold price inflation,
encouraged by stronger economic growth and lower inflation.
Consumption of precious jewellery subsequently lost momentum when the situation reversed. Economic
growth is now weaker and Indian consumers are currently battling higher inflation.
Retail sales of gold jewellery are forecast to decrease by 4% to 1,763 billion rupees (US$31_732 billion) in
calendar year 2013. Demand for gold jewellery was strongest in the first half of the year, corresponding
with the initial burst of lower gold prices. Volume demand for gold jewellery is forecast to increase by
4.3% to 575.2 tonnes in 2013. Consumer demand for gold was robust from the last quarter of 2012
culminating in even stronger buying in the second quarter of 2013, following massive declines in the price
of gold.
When the price of gold first plunged to levels last seen in 2010, jewellery consumers quickly saw this as a
buying opportunity and rushed to make purchases, Many reasoned that the dip in gold prices was an
anomaly and expected gold prices to soon return to their long-term upward trajectory. However, this has
not occurred. As a result, 'volume demm7d has hem quite weak in the second half of 2012.
Retail sales of diamond jewellery are forecast to increase by 11% to 478 billion rupees (US$8.609 billion)
in calendar year 2013. Demand for diamond jewellery grew at the slowest pace in recent years...
...continued on next page
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India: Summary continued...
...after consumer budgets were shifted from other jewellery products to augment gold jewellery purchases.
Retail sales of precious jewellery are forecast to decrease by 1,2% to 2,241 billion rupees (U 40, 41
billion) in 2013 mainly because of higher purchases of gold jewellery at lower gold prices.
In the short-term, demand for jewellery products has been stifled by higher inflation, less positive macro-
economic environment, and moves by the Indian government to force a reduction in gold and polished
diamonds imports.
Current conditions in India have greater negative impact on diamond jewellery sales than on gold
jewellery sales since consumer demand for diamonds is more discretionary, With persistent inflation,
prices for goods in India are higher and this makes jewellery less competitive.
Outlook
Jewellery sues in India will experience slower growth in the period 2013-2016 than in the period 2009-
'2012. The culprits will be ongoing weakness in consumer spending which has been hit by rising inflation,
lower real wage growth and a poorer macro-economic environment.
Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the
back of continued modernisation of sales channels in India and the expected gradual rise in the number of
middle class consumers,
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Nu ty (It)Ihmurlic4liont }l
India: GDP Snapshot
% Share of Global Nominal GDP
India Real GDP Growth Rate 1980 1981- 1966- 1991- 1996- 2001- 2006- 2011 2012 2013 2014-1985 1990 1995
200l 2005 2010 2018
U
Unlikely that India will achieve average growth of +6% in next five years, as per IMF forecast
India GDP Per Capita
1.414.11
2012E 2013F 2010F
Gigantic population means middle-class is increasing in impactful numbers
India Real GDP and CPI Inf lat ion Year-o er-Year % change
15.0
Deteriorating inflation fundamentals
0.0
LPSs 2 , 0 . 0
~,#DG.1)
U5$ Eill icn5 1 .06v ,0 i 1,74%
India Nominal GDP 1 45% 2r65' L 55A
,39%
1,572.15 N,141.77 1,]51.22
327.27 474.57
1 9 9 4 2000 2 0 1 0 2011 2012E 2013F 2010F
India has reversed gains of the last few wars
314 1'-716 7]
1900 Ig9a
9.0 8.4 7.0 6,4 #,7%
1,#% S.4
4.0
3,0.
2.4
1.0
0.4
6 R
1.6%
5.1%
l 7\
1.41111 + . 4 4 . 5 1. !IM.16
461. 11
2000 201D
110,0
0.0
2800 2010
L Real GDP g
Source: J FWorld Economic Outlook Database, Equity Communications Data. Data as at October 2013
rowth Rani India GPI Inflation
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N u i t y Coinmur , ica tk in t } I
India: Wealth Snapshot
India's Total Wealth USS Trllllons
5,0 1.02% 1.Z9%
4.0
3,0 2 0 0 0 - 2013
Year-over-Year
Change = 8,82 2.0
2000 2005
Share of World Wealth
1.52% 1,47% 1.50%
Total wealth position has deteriorated
India's Wealth Per Adult
U5$ &,4oo 2 0 0 0 2013 Year
•ove
f-Ye
ar
%
Cha
nges
2000 2005 20W 2011
=
6.6+
India's Adult Wealth Pattern
Adult Population
000s 1010 1011 2411 1013
606,000 22% 22.4 22.4% 22.6%
939E 92.9 95_1%94_4%
700,000
600,000
500,00G
400,000--
300,000-
100,000 ..
100,000
0
1.779
1 ni
2010
2011 2012 2013
Wealth per adult has lost momentum
2013 2012
5.000
4.000
•-3, 000
•-
2,064 •• L.0Q0
Under 110,000
•-•-•-•-•-•• But currently mowing in tI wrgrr~dir #ion
4.6% 4-6'% 1.31E LI%
6.616 6.6' 4,6% 5.M 0.1%0.8% 0.1% O, 7'% O, n, 0.6% 0.6%
0.4%0,4%0.3%0,3% 0 . n 0 . 0
Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Data Book 2013, Equity Communications Research
' ' T.diamoridshades.corn
Currently leads world's poor, increasing in number
767,6 million % of Global Adults
• Excellent Qconamic performance can shirt India's adults to higher wealth groups, creating a massive consumer market for the world's slaods
2010 , 7011
2012 L 2013
Cantribull i • Global Adulti in Wealth Clrauplr~
Contribution - Indian Mulls rn Wealth 6rauprrtg
Li
10,044 - 100,000 $ 00,000- l mllllon O r 1 mlllldn
India: Demographic Snapshot
Tho~rsan&
900, 000
SIr DOG
- 7oo 0o°
- U00,
000'.
Adult Population of India Share of World Adults
15,45% 15.85% 16.19% 16.27% 16,36% 16.45%
coo, aoo. .
404,
000 ...
304.000
200, aoo
1W,000
.
I. i 2000 2 0 0 2010 2011 2012 2013
Source: Top - US Census Bureau, International Database, July 2012, Middle - United Nations, Department of Economic and Social Affairs, Population Division (2012). World Urbanization Prospects: The 2011 Revision, Bottom - James Davies, Roddgo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Data Book 2013. Equity Communications Research
Population Projections for India Billions
Average Annual G!owth Rate 2021.2030= 0.97%
7011 .7070= 1.73% 1 9 1 .7044= 1.35%
7041-7014= 1,59%
2 0 0 0 2 0 1 0 2 4 2 0 2030
2.o
1.o
0.O--
0 5 - 1 0 10-15 1 9 9 0 - 9 5 4 5 - 0 0 00-05
Urbanization Prospects for India Average Annual Rate of Change of the Percentage Urbsirl
2011 Total Population = 1.241 billion - 5 years ago= 30.25%
-10 years ago= 28.61%
2011 Percentage Urban 31.3% 76 years ago= 25,07%
I . 0 b Urban Population
2012=31.66%
Lower population growth positive for improvement in standard of living
Positive with improving urban infrastructure; negative with slums
Massive opportunity with sustainable long-tenn economic growth
India: Demographic Snapshot continued...
Crude Birth Rate for India
Birth per 1,000 Population
201 2 - 29.43% Population below 15 years
-5 years ago = 30.97% -10 years ago= 33.03% -25 years ago= 37.89%
i l i 1980-B5 85-90 90-95 95-00 00-05 05-10 10-15 15-20 20-25 25-30
Total Fertility Rates for India
Population regeneration is improving to a level that is conducive for faster economic growth. Age at first marriage is becoming more attractive and this is positive for consumption of precious jewellery for engagements and weddings.
Source: United Nations, Department of Economic and Social Affairs, Population Division (2013). World Population Prospects: The 2012 Revision. Equity Communications
N lv.diamondshades.com - 1 0
Children per Woman
1 9 8 0 - 8 5
B5-90
e a! First Marriage 2006= 20, 2 years 2000= 20.2 years 1990 19.3 years 1981= 18.7 years
rn 90-95 95-00 00-05 05-10 10-15 15-20 20-25 25-30
.o .
4.0
3.0 ..
2.0-
-
40
3°.
2O-,
to
0
India: Employment, Consumption, Rupee cross-rates
Employment Growth For India Year-over-Year change 3.0
c.0 1990 2000 2010
India Emerging Market and Developing Countries
Labour Productivity Growth for India Y ~ - r-Y r % Ching# 7.0
6.e
50
3,4
2.0
0.0. .
1990
-1.o
2000
Inri• a Emerging Market and Developing Countries
Private Consumption Growth for India Yrar•avtr • Year % Chayrrgt
10.0 9.0 8.0 7.0 '. a 5.0 4.0 1.o
2.0 'Q 201312,N
0
Indian R u p e e Cross Rates
1606 2007 2008 2009 2010
Source: Top Two - The Conference Board Total Economy Database, January 2013, Consumption Data - OECD (2010) "Wain Economic Indicators - complete database" accessed Oct 2013. Bottom - Equity Communications Data
2010
2009 2010 2011 2012 2006 2007 2008 3005 2013
UK round
Ciao
L J h D o i I MF
India: Jewellery Consumption Trends
Gold and Diamond Jewellery Demand by Region
Retail Sales of Precious Jewellery in India US5 millions
35176
I i i
8,707
Year-over-Year % change
20O2•2012 22.2O% 2009. 2012 = 39.96
2011 -2012= 16.05
2012
2011
2010
2009
1008
1007
100,
1005
2004
200
2002
0 10,000 20,0-00 30.000 a 0,000 5o. o00
13% N
Source: Top - Equity Communications Data, Converted from local currency using 1 Rupee = 0.018 US dollars, Bottom - Care Report 2011
N lv.diamondshades.com - 1 2
India: Jewellery Consumption Trends continued...
• Denimnd for gold jewellery is very strong because of cultural preferences, including adornment+investment factor - 81 to 86 percent of jewellery retail sales are gold jewellery
products (22-24 karat pure gold preferred because easier to liquidate). There is a culture of buying
gold during auspicious occasion of 1iwali,lkshaya Tritiya, Dussehra and also during weddings,
In rural India, farmers typically buy gold jewellery after every successful harvesting season as it is
the best form of investment for them. Gold is also a natural hedge against inflation.
• Jewellery fashion changes seasonally leading to higher product obsolescence - slow moving jewellery at the tail end of seasons, therefore significant recycling may reduce new sales - possibly
up to ten percent,
• Sales of higher priced jewellery are supported by the introduction of schemes that enable consumers to make advance payments in monthly instalments, Consumers purchase often
discounted jewellery at the completion of the instalment period,
• Increasing number of consumers (20-30%) augmenting gold purchases with diamond jewellery purchases. Diamond jewellery has a stronger adornment factor - diamond jewellery set in lower
18 karat gold (diamond necklaces very popular). Platinum-setting gaining share of diamond
jewellery sales - now at 20-25% of diamond jewellery sales.
• Jewellery brands recent phenomenon but very popular with the youths in metropolitan cities - a globally connected youth market is revolutionising jewellery consumption in India. Demand for
fashion jewellery on the rise.
A ].
India: Retail Sales of Gold Jewellery
qu ty ColhmUnic4li4int
U S m i l l i o n s Retail Sales of Gold Jewellery in India
2012
2011
2010
2009
2000
2007
2006
2005
2004
2003
2002
0 10,000 20,000 30,000 40,000
Gold Jewellery Demand Trends in India Year-over-Year % Chop e
L Volume Demand S Retail Sales
S U55 fold p
'Ii rice
Rupee fokd Price
-20,0 ...- 2003 7004 20-05 2006 2007 2405 2049 2010 2011 2012
is 717
2 0 0 2 2U J c 10.91'., 2009 .2012 = 37 .2M 2011.2012 = 13.26%
100.x%...
70.0%
60.0%
50.0% -
40.0%
30.09
10.0°
0.0%.-
• 1 0 - a --
Source: Top - Equity Communications Data, Converted from local currency using 1 Rupee = 0.018 US dollars, Bottom - World Gold Council, Gold Demand Trends, Equity Communications Database
- 1 4 N lv.diamondshades.com
India: Retail Sales of Gold Jewellery continued...
Retail sales of gold jewellery in India have tracked increases in the price of gold because of the strong
adornment+investment demand factor, Volumes change from year to year depending on consumer economic sentiment but significant gold price inflation in recent years had put massive pressure on
consumer demand. As a result, gold grammages for jewellery pieces were trending downwards up until
the significant plunge in gold prices in April 2013.
Source: Chart -World Gold Council, Gold Demand Trends, Equity Communications Database
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Indian Rupe slTroy Ounce US Dollars/Troy Ounce
993 2000 2 0 1 0
Gold Price in Indian Rupees and US Dollars
2,000.0
yep 2013- IN R 86,135
sep 2013= US 1,348,80
1 OOU.U
100.000,0
90,000.0
80,000.0
70,000.0
60,000.0
50.000.0
44.000.0
34,000,0
20.000.0
10,000,0
India: Retail Sales of Diamond Jewellery Retail Sales of Diamond Jewellery in India
2005 M
2004
2003
2002
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,400 8,000
US$ millions
Purchases of diamond jewellery are comparatively complex because they require at least passing
knowledge of the 4Cs of diamond jewellery - colour, clarity, cut and carat. Without doubt, this has been a
significant barrier to sales growth in India and other nascent diamond markets since diamond jewellery is
traditionally expensive.
Nevertheless, establishment of organized retail chains in India has given Indian jewellers the platform to
educate consumers about diamond jewellery. Furthermore, the introduction of certified diamonds has
increased trust and made diamond valuations more transparent.
Indian diamond industry players are taking diamonds to the mainstream, allowing people of most
economic levels to purchase diamond jewellery. Jewellery manufacturers are innovating and producing
fashionable diamond jewellery which is cheap by traditional world standards but targeted at the middle
class in lildia where demand for such products - diamond accented jewellery - is strong and growing in
leaps and bounds.
Source: Chart - Equity Communications Data, Converted from local currency using 1 Rupee - 0.018 US dollars
N Iv diamondshades com - 1 6
2012
2011
2e to
24Q9
2008
2 c r i
2006
2, W4
1,9O
1,31a
Year-over-Year % Change 2002-2012 = 30.29% 2009-2012 54.979 2011.2012 29,7M
4,36G
A 3.quty CoinmUnic4ti4int
India: Diamond Jewellery Consumption pattern
Diamond Jewellery Demand by Region
There is a shift in consumer preference to low-priced
everyday diamond jewellery
which is about 50 percent
cheaper than event-driven
diamond jewellery and also
cheaper than pure gold
jew
jewellery cannot be
ellery, Everyday
e pefisive jewellery.
Trendy li hmei ht designs,
guaranteed buy-back
schemes, transparent
pricing, and availability of
quality certification have all
boosted sales.
The quality of cheap
diamond jewellery produced
has also improved
dramatically in the last
three years and we believe
it will soon debut on the
world stage,
India has a 32 percent urban population. As a result, diamond jewellery sales are very minimal in rural
areas where gold jewellery is extremely dominant. Diamond jewellery sales are stronger in the larger
and wealthier cities and decline rapidly as we move towards rural India.
Source: Top - Gitanjali investor presentation, Bottom Two - Equity Communications Research
N Iv diamondshades com
Classic. w dire style jewellery with bigger Iook 5I JK Colour
Modern, fine wphi.sticated
signs WS-5I GH Colour
Traditional, temple designs CH Colour
TrAitignal, ethr+k desiI WS DG Colour
Diamond Jewellery Market Share of Retail Sales in India
M. r I#4tr . . . L t d Ciclis
Small Cities
Rural India
Consumption Breakdown for Diamond Jewellery in India
Overall M.arket Share
A 3
.
India: Jewellery Retailing Landscape quty ColhmUnie4ti4int }i
Market Share: Organized Retail vs Informal 741 6E
7014E t New sourcing regulations favour organized retailers Cheaper gold = more competitive mak°ni ( h a r t for organized retailers
2012 Numerous capital raising initiative by organi7eti retailers
2010
0% 10% 20% 30% IC% to 'a 70% 80% 90' a 100% L Informal/Neig
India is modernizing its retail landscape. Traditionally, Indians go to the preferred and trusted
}hbourhuod J1 wtllcr r . Organised Retail (Including r gional Stares retail chains)
neighbourhood jeweller for their jewellery requirements. However, this is gradually changing with the
emergence of numerous regional retail chains and a sprinkling of countrywide retail chains.
Industry Profile
• India continues to modernize and urbanize its retail model
• New regulations, duties and tap
business finance
es that favour formal business operations - materials sourcing and
• Input costs increasing more than 200% in five years
• Competition for limited quality retail space
• Consumer preference for hallmarked and certified jewellery is fast becoming standard - retail
brands
Source: Chard - Equity Communications research and projections. As at November 2013
N Iv.diamondshades.com - 1 8
Highly Segmented
2a 7
T
India: Jewellery Retailing Landscape continued...
The dominant profile of business in India is low margins and high volumes. Margins continue to be under
severe pressure owing to a steep rise in commodity prices and steep competition. For this reason, the
jewellery in India will have to be more aggressive in its push for large-scale adoption of branded
jewellery as this will create space for more sustainable margins in the sector. Fortunately, fashion -
conscious youths have shown strong appetite for branded jewellery and this has provided a much needed
pull-factor in the demand for branded jewellery and establishment of jewellery retail brands.
Nevertheless, the Indian market remains very difficult for foreigners to penetrate because...
• Weddings and Cultural Festivals are key consumption drivers - demand is very traditional with product preferences varying from region to region and season to season
. Retail landscape underdeveloped - extremely limited quality real estate available to foreigners for
the establishment of profitable store networks
• Unusual sales methods - trade-ins, discounts and buy-back schemes popular because of adornment+ investment factor and seasonal consumption of jewellery
. Restrictive tariff arrangements on imported jewellery and luxury - margins for jewellery are
already comparatively lower
India: 2013 Interim Review of Jewellery Market
Gold Stole head l ines in 2 0 1 3 :
1.. The gold price plunged and released pent up demand for gold jewellery
The Reserve Bank of India announced new restrictions on gold imports into India in order to improve
the country's national accounts position
1. The gold price plunged and released pent up demand for gold
jewellery
When the price of gold first plunged to levels last seen in 2010, consumers of gold jewellery in key
markets quickly saw this as a buying opportunity and rushed to make purchases. Many reasoned that the
dip in gold prices was an anomaly and therefore expected gold prices to soon return to their long-term
upward trajectory. However, this has not occurred and probably will not occur in the foreseeable future,
As a result, we expect investment demand for gold jewellery to remain muted going forward.
1x000,0 100.0
0.o
Quarterly Gold Demand for Jewellery in India
U5{T O 2 000 0
Q4 Q1 Q2 Q3 Q4 91 92 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011. 2011 2011 2011 2012 2012 2012 2012 2017 2013 2013 2013E
India: 2013 Interim Review continued...
2. The Reserve Bank of India announced new restrictions on gold imports into India in order to improve the country's national accounts position
• At least 20% of all gold imports into India must be for re-export
• 20% of all gold imports to be retained in customs bonded warehouses
• Fresh imports of gold allowed only after the exports have taken place to the extent of at least 75%
of gold remaining in the customs bonded warehouse.
0
• Customs duty on gold imports hiked from 8% to 10% and on imported gold jewellery from 10% to
15% • Gold imports in any form for domestic use shall be made available only to entities engaged in
jewellery business/bullion dealers supplying gold to jewellers
• Gold for domestic use shall be made available only after full upfront cash payment
• Ban on import of gold coins and bars for investment purposes
Implications for Jewellery Industry
• Retailers with significant export business to come out ahead since steady availability of gold is
ensured, including better financing terms
• Informal businesses to be further marginalized from official raw materials procurement channels
• Export Jewellery businesses have become crucial again - management attention to likely shift from
domestic expansions to foreign expansions (More exports required to grow domestic business)
• New procurement rules that outlaw gold loans to increase pressure on finance costs, cash-flow
management to require more scrutiny
• Pressure on retailers to push more diamond jewellery which has better margins. Light weight gold
and diamond jewellery pieces also an option
Essentially, the government of India is trying to disrupt India's famous love-affair with gold because of its
negative impact on the country's current account balance. Gold contributed nearly 30Q4 of India's trade
deficit during 2009-10 to 2011-12_ Indian consumers put money into gold because they trust it much
more than they do banking products offered by the country's financial institutions. Furthermore, as much
as 42.4% of India's GDP is believed to be in the underground economy, up from 2L.49 in the pre-reforms
period, Gold provides liquidity for the untaxed underground economy in India.
21
India: 2013 Interim Review continued...
Put simply, the new rules state that gold imports for domestic purposes cannot be increased without a similar increase in gold imports for re-export purposes. As such, there are concerns that current gold jeweller exports are not enough to cover actual current domestic demand for gold jewellery.
Nevertheless, a cursory analysis of gold import and export data provided by the Gems and Jewellery Promotion Council of India suggests that gold exports are adequate to cover domestic demand for gold jewellery. Therefore, we believe the new policy environment will ultimately lead to further realignment of the jewellery industry in India to the benefit of well positioned jewellery businesses - those with significant export operations plus appealing domestic jewellery retail brands.
Nut ty [,olhmurliE4li4int } I
India: 2013 Retail Sales of Jewellery
Source: Equity Communications Data. Data as at November 2013. Converted from local currency using 1 Rupee = 0.018 US dollars. Gold Volume Data- World Gold Council, Gold Demand Trends, Equity Communications Data
I lv.diamotidshades.com - 23
Retail Sales of Gold Jewellery in India 3,009 Ruprr gI l l lms
-4%
3 2 2
QI 02 Q3 Q4 CY2D12 Q I Q2 2012 2 6 1 2 2 c i 2 2 0 1 2 2013 2013
Ru + r Q u i d r l l t ; 6 i , b l b 1 . 1 0 4 1 , 1 4 D 93 . 4 1 P,07 Md. l94 F$ .944
VdumrDew rund ITI: 136 .3 124 .& 136 .1 15 ] 552 159 .5 199
Q4 { Y 2 * 1 3 2 0 i 3 r
x6 ,34* E7,1Wi 113 . ; 5 ]S -9
2013 Retail Sales of Precious Jewellery in India R~par Bi Ilian~
Diamond Jewellery Gold Jewellery Total 2011L2012 2013
3 , 04D
Year-o+~er-Year i Char€
298 X431
~ r .
Z, 04D
1 , 0 0 0
Diamond Jewellery Gold Jewellery Total
2013 Retail Sales of Precious Jewellery in India
0,82?
U55 Millians
0
India: 2013 Retail Sales of Jewellery continued...
Summary
Retail sales of gold jewellery are forecast to decrease by 4% to 1,763 billion rupees (U 1.7 2 billion) in calendar year 2013. Demand for gold jewellery was strongest in the first half of the year, corresponding
with the initial burst of lower gold prices. Volume demand for gold jewellery is forecast to increase by
4.3% to 575,2 tonnes in 2013, Consumer demand for gold was robust from the last quarter of 2012 culminating in even stronger buying in the second quarter of 2013, following massive declines in the price
of gold,
When the price of gold first plunged to levels last seen in 2010, jewellery consumers quickly saw this as a
buying opportunity and rushed to make purchases. Many reasoned that the dip in gold prices was an
anomaly and expected gold prices to soon return to their long-term upward trajectory, However, this has
not occurred, As a result, volume demand has been quite weak in the second half of 2012,
Retail sales of diamond jewellery are forecast to increase by 11% to 478 billion rupees (US$8.609 billion) in calendar year 2013. Demand for diamond jewellery grew at the slowest pace in recent years after consumer budgets were shifted from other jewellery products to augment gold jewellery purchases,
Retail sales of precious jewellery are forecast to decrease by 1,2% to 2,241 billion rupees (U 40, 41 billion) in 2013 mainly because of higher purchases of gold jewellery at lower gold prices.
India: 2013 Retail Sales of Jewellery continued...
Jewellery products are discretionary goods whose demand fundamentals are at the mercy of consumer
economic sentiment. If consumers believe the economy is healthy, they are more likely to absorb rising
prices of discretionary goods. When economic sexntinient is w e , consumers purchase fewer
discretionary goods.
In the short-term, demand for jewellery products has been stifled by higher inflation, less positive macro-
economic environment, and moves by the Indian government to force a reduction in gold and polished
diamonds imports.
Current conditions in India have greater negative impact on diamond jewellery sales than on gold
jewellery sales since consumer demand for diamonds is more discretionary. With persistent inflation,
prices for goods in India are higher and this makes jewellery less competitive.
For 2013 at least, gold jewellery sales by volume are expected to be stronger than for 2012 despite a
poorer third quarter performance compared to 2012. Earlier this year, consumers in India took
advantage of the unprecedented slump in gold prices to massively increase gold jewellery purchases,
especially for cultural gifting purposes. Furthermore, since jewellery purchases occur on budgets,
budgets were shifted from other jewellery products to augment gold jewellery purchases.
For the last quarter of 2013, consumers will likely shift to lighter gold jewellery products in light of the
prevailing economic conditions that have kept gold prices higher in India. On the other hand, farmers in
India appear to have had a good harvest and this always boosts gold jewellery sales in addition to strong
seasonal demand for weddings and festivals. However, gold import curbs by the government as well as
strong out of season purchases earlier this year could also result in lack-lustre sales for the season.
India: Outlook for Jewellery Market
Jewellery Product Preferences
Gold Jewellery versus Platinum Jewellery Vs Diamond Jewellery
Demand for gold jewellery is steeped in tradition that goes back more than a thousand years....that is not
about to change. Therefore, gold jewellery sues will still experience volume growth subject to a better
macro-economic environment and stronger disposable incomes.
On the whole, Indian society is modernizing and becoming less traditional. Consumers have shown a
willingness to amplify traditional demand for gold jewellery with purchases of jewellery made from other
precious materials like diamonds and platinum. At steady gold prices, demand for such products will grow
faster than demand for gold jewellery products simply because it is sti l l
Behind this revolution in consumption patterns is the large population of young people in India using
in the nascent stage.
internet technology to stay in tune with the world. As a result, the Indian young adult population in the
major cities is fast become sophisticated and increasingly becoming less satisfied with plain gold jewellery.
Younger jewellery consumers in India care more about design, style and seasonal trends. For this reason,
brmding, marketing and product placement have become important.
Diamond jewellery is actually not a great financial investment as more consumers in India are starting to
find out. We believe this will likely impact the pace of diamond jewellery adoption by Indian consumers
going forward.
For the most part, diamonds of the cheaper variety are becoming more prevalent within day-to-day
jewellery pieces as they offer flexibility in terms of style and colour, often adding a more contemporary feel
to a look or outfit. We fully expect movement of diamond jewellery consumption away from the
adornment+investment category and towards the adornment only category.
Retailers have been trying to grow share of diamond jewellery to at least 40% of sales as this would greatly
improve profit margins. However, the goal has so far proved elusive because gold jewellery sales have also
been growing at a remarkable pace, fuelled by significant gold price inflation. Let us see what happens
with steadier and lower gold prices.
India: Outlook for Jewellery Market continued...
2013 -2016
Please refer to charts in first section for Macroeconomic and Demographic Scorecard. Jewellery sales in India will experience slower growth in the period 2013-2016 than in the period 2009-
2012. The culprits will be ongoing weakness in consumer spending which has been hit by rising inflation,
lower real wage growth and a poorer macro-economic environment.
At Equity Communications, we still feel India is a policy mess and will remain so for the foreseeable
future. Our thinking is that India will stumble along for the remainder of this decade because of glaring
structural deficiencies such as troublesome inflation and the current account deficit which remains
vulnerable to poor policy decisions and business-culture problems.
We believe Indian culture is greatly responsible for the country growing below its potential GDP.
Nevertheless, the 5 to 7% annual GDP growth rate guarantees that India will become the next China in the
2020s because of its gigantic population.
Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the
back of continued modernisation of sales channels in India and the expected rise in the number of middle
class consumers. Indian jewellers are raising money on the local stock exchange and using proceeds for
raw material procure.meiit and store expansions, including large format stores across the country.
Recycling of gold jewellery is also expected to increase in the coming years because jewellery designs are
becoming stale faster, Slow moving jewellery at the tail end of seasons is recreated into new designs.
The product mix for jewellery retailers is a key determinant of profitability. Gold margins are standardized
because of adornment+ investment factor. However, quest for greater margins is driving diversification
from gold jewellery products.
Demand for gold jewellery remains very strong because of cultural traditions, Gold jewellery sales - for
weddings, in particular - will continue to generate volume growth for jewellery retailers. Platinum and
diamond jewellery sales will generate margin growth.
The shift to more profitable diamond jewellery has been smooth because India is the world's dominant
processor of rough diamonds, with a monopoly position in the processing of small size and small value
diamonds,
India: Outlook for Jewellery Market continued...
Industrialization and improvements in the standard of living reduce long-term
consumption of precious jewellery
Industrialization and improvements in the standard of living reduce long-term consumption of precious
jewellery since they also lower the potency of love traditions (marriage) that typically drive jewellery
consumption.
.
With Industrialization and improved standards of living:
• there is reduction in communal economic activity such as subsistence agriculture
• there is urbanization and standardization of dwellings
• there are increases in wages
• there is increase in the status and education of women
• there is introduction of superior methods of birth-control that have revolutionized the
sexual habits of h = - b e i n g s
Industrialization and improvements in the standards of living causes a drastic shift in values from
collectivism/communism to individuality. Unlike collectivism which emphasizes doing things for family
and community, individuality gives priority to personal freedom, self-determination and self-realization.
To those operating in the Indian jewellery industry, you will be pleased to know that India is still a very
long way from being fully industrialized,
From the beginning of time until well into the 20th century, precious jewellery was extremely rare and
costly to access in most regions of the world, making it extremely valuable as a status symbol. For much
of that time, only the very wealthy could afford the luxury of precious jewellery since gold and silver were
also used as circulating currency. It is no wonder then that consumption of precious jewellery receives a
boost as societies become richer.. When more and more people around you are becoming wealthier, it is
very important to prove that you are not being left behind.
However, consumption of precious jewellery also loses much of its emotional appeal as wealth becomes
more spread out. When everyone around you can afford a product, it becomes redundant to prove that you
have it too.
India: Outlook for Jewellery Market continued...
• Cultural tradition of precious jewellery consumption
• Gigantic population
• Gradually growing economy and improving standards of living
• Leading global centre for precious jewellery manufacturing
• Population regeneration supports sustainable consumption
To those operating in the jewellery industry, you will be pleased to low that tWs is the stage at which we find India today. Despite the Indian's government's efforts to dent growth of the retail jewellery sector in
India, demand for jewellery is naturally structured to grow significantly.
A 1'qLIi*y Cl}IMJrILI1 ' i c4 t l 4 l da } ] '
Appendix: Selected Indian Jewellery Company Data
a
Titan Industries Jewellery Division
• Largest jewellery retailer in India
• Three major brands - Tanishq, GoldPlus and Zoya
• Sub-brand - Mia, for the working woman; fq for the teens
Source: Company publications, Equity Communications research
200
100
Titan Industries Jewellery Stores
PreITllurll LukurV Mass.Mat ket
300
FY12 L.
FY33
#2FY14
146 157
32 13
2 2 m Zoya GOIdPIui B.Indti
Titan Industries Jewellery Sales
g1FY12 g2FY12 g3FYI2 q4FY12 gLFY13 g2FYI3 g3FY13 g4FY13 gIFY14 42FY14
Titan Industries - Jewellery Brands Sales Growth
a0%"l
30~r
30*
10%
0"•
•10%H
-2Q°AF
•30%' 44FYI2 g1FYl3 q2FY13 g3FYL3
TMIASlIq L GLFldplua
g4FY3 g1FYl4
Year-over Year G r o w t h
50 4 3U9D• 3 0 %
NuGty ColhmurliE4ti4ont
Appendix: Selected Indian Company Data continued...
Titan Industries - Jewellery Brands Same Store Sales Year-over-Year % G r o h
4o% . . .
-
Titan Industries Jewellery Division Revenue Growth Vs Customer Growth
Year-over-Year % Growth
r0.0o , , ,
,
g4FY12 g1FY13 g2FY13 g3FY13 g4FYl3 gIFY14 qZFY14
Titan Ind - Grammage Growth of Gold Jewellery Sales
3
glFY12 q2FY12 g3FY12 n4FY12 gIFYl3 92FY13 g3FY13 94FY13 g1FY14 g2FY14
Source: Company publications, Equity Communications research
25%
g3FY13 q4FYI3 eIIFY14 q2FY14 g2FY13
2,%
-30% L g4FYl2 g l F Y l 3
29%
Tani'Shq Gold pIU#
5 4 01. -7%
4.U°k
31-0%
6.0%
50.0%
44.0%
30.0%
20.--
10. 0%
0.0%
-10.0 b .
57% 2,989 2 , s1? 3,80 2,804 2,815
47%
7 f tj
5%
Gold Rate per gram Rupees
3,433 3,108
12'
Year-over-Year % Growth
2,250 2,641 70%
50%. .
40%. .
30%
20%
0%
-10%.-
-20
-30%. .
-a9 %
NuGty ColhmUnic4li4ont }l
Appendix: Selected Indian Company Data continued...
T a r a J e w e l s
Integrated player in the
Indian jewellery i n d us t r ,
launched and expanding
domestic retail network
Target segment of market -
aspirational l h u r y shoppers
m India
Average ticket size of Rs
50,000
Tara Jewels Retail Stores
F yis ,
FYL4E
" 1 '
Fy12
F y l l
50
- Average size o( store = 1,000 square feet − 43% of stores to FY2013 in J
aharashtra, wealthiest state in India
− Expanding in the relatively wealthy West and S th
10 20 30 40 50 60 10 no 90
Tara Jewels Domestic Revenue INR Millions
3.ouo. u
Year-over-Year % Growth = 04%
1 4 2 . 1 4
FY2010
1,000.0.
0 .0 HI1V2013 HLF'Y2N14
9.94%
1,034.$*
FY2J12 Y2013 FVial 1
INR Minims Tara Jewels - Sales by Product Mix
3,000.0
Id moles provide volume growth Diamond sales provide margin growth
Gross rgirtis
3
149
rvz ll FY2U12 F Y2013 H 1 1 T . 2 0 1 3 i11IYZ014 • Diamond Producti L Gold P r a d u f t b
2,000,0
0.0
3 14%
45%
12%
N u t t y [,i)IMmUnic4li4ont
Appendix: Selected Indian Company Data continued...
Tribhovandas Zaveri (TBZ)
• Specialty retailer with focus on both wedding and fashion segmeiYt of the li7dian jewellery market
• 27 stores - -88,000 square feet - spread across 20 cities in 7 states.
• Expansion plan to increase the number of stores to 57 and retail space to -150,000 square feet by 2015 spread over 43 cities in 14 states
TBZ Retail Store Network
Q3FY14
Q21Y14 26
FY13 21
FY12 1 14
14
FY11
Large format stores - 3, square feet plus, Average Sales Sq ft - 118275,000 Price Points - Up to INR2,W,004 Inventory • INR300 million, Gold 70 Diamonds 30%
FY l4 14 Small format stores • 1,000.1500 square feet Average Sales Sq ft - INR !50,O00 Price Points - Up to INR500,Q0O Inventory - INR104 million. Gold 709 Diamonds 30%
Y09
10 2 0 30 aD
TBZ Jewellery Revenue IMR Millirns
Revenue per sglwe foot
30, D00
I yo9 Iy]U
20, 000
FY12 CFY13 H1FY13 HLFY14
Appendix: Selected Indian Company Data continued...
TBZ - Diamond Jewellery Sales
Year-over-Year growth =1.62%
1
FY09 FYI0 FY11
Cdrdti Year-over-Year growth =L:27%
60,000--
50,000
40,000
30,000
20,000
10,000...
FY11 FY13 FY10 FYfl9
0
Kilogram, 5,000
4,000
3,000
11 2,000....
1,000....
1 FY1Z FY13
TBZ - Product Mix Contribution to Revenue
1 0 0 % 9O%
80%-70%-
60% 4O%
10WDO%o
W O Jewellery Diamond Jewellery
50% wedding jewellery 40% wedding jewellery 50% fashion jewellery 60% fashion jewellery Stock turn 4x Stock turn 1,5x Gross margin 11% Gross margin =35%
Wedding jewellery sales generate strong volumes; and fashion jewellery sales offer growth
FY09 FY1O fY11 FY12 FY13 FV14Q1 H1FY13 HIFV14
Diamond Jewellery L. Gold Jewellery
Nutty ColhmUnic4ti4ont WI TBZ - Gold Jewellery Sales
Appendix: Selected Indian Company Data continued...
Selected Indian Jewellery Retailers
96,72%
600.O% 553.41%
Year-over-Year % Domestic Revenue Growth
10,66% 1 4 . 7 8 %
30,22% 39,74%
50,05% 44.76%
Gitai1jali Sheriu TilAin Industries
46.49% 19.69% 57.15%
16.05% 9BF17%
51.64%
54,3%
3 4 , 9 2 %
TBZ PC Jewellers
66_, 5%
FV203 1 LJ FY2012 U FY 2013
500.0%---
400.0%
300.0%.
200.0%. .
100.0%
0.0% L
26.01%
Tara Jewels
Source: Company publications, Equity Communications research
- 35
About Diamond Shades and Equity Communications
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Limited. Diamond Shades provides breaking news alerts, analysis and commentary on the diamond industry
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Research Reports
Free Reports with download licks provided
• Rio Tinto Diamonds 2013 - Published May 15, 2013
• De Beers Group 2013 - Published July 24, 2013
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• Zimbabwe Diamond Mining - Published August 1, 2013
• World Diamond Production 2013-2018 - Published August 3,2013
End of year publication schedule • 2013-2014 Guide to the Jewelleiy Market in India
• 2013-2014 Guide to the Jewelry Market in USA
• 2013-2014 Guide to the Jewellery Market in China
• 2013-2014 Guide to Global Consumption of Precious Jewellery
• 2013-2014 Analysis of Key Materials Used in Precious Jewellery Production (FREE!)
• Diamond Report 2013
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