| 'Jewellery demand may remain low for 9-12 months' | |
| Q&A: Rajesh Mehta | | Anil Urs / Mumbai January 7, 2009, 0:41 IST | |
 Rajesh Exports — which manufactures and exports gold and diamond jewellery — has seen a sharp drop in demand as recession-hit consumers prune their indulgences. The Bangalore-based company has rejigged its business to maintain its topline at last year’s level though it is expecting to see a 40-45 per cent drop in profitability as it is forced to shift to low-margin business, Rajesh Mehta, chairman and managing director of the company tells Anil Urs in an interview.
How is the Indian jewellery export industry affected by the economic recession in the West?
Indian jewellery exports are divided into two segments — Jewellery going to Asians residing in various parts of the world and jewellery which goes to the white population, to Europe, America and Japan. The prospect of the jewellery going to the white population is definitely not good and there are problems of credibility of the customers and credit issues. The demand is low and I expect it to be poor for the next 9-12 months.
This segment of jewellery is witnessing a demand drop of close to 30-35 per cent. The demand for Asian jewellery has also come down but it has not been affected as much. It has fallen by about 15-20 per cent.
How are companies like yours handling this slowdown situation?
We sell in India, West Asia, US and Europe. Due to the decline in demand and sales, we have shuffled our production. By doing this we are able to achieve our revenue target similar to last year, but there will a big hit as far as profitability is concerned.
We see a drop of 40-45 per cent as far as profitability is concerned. We are no longer exporting a lot of high margin products, which have seen a drop in the demand. We are exporting primarily to good partners or customers who pay us in cash or in advance.
Has there been any cause for cheer in Christmas/New year sales?
There was huge decline in Christmas and New Year sales this year. Globally, this year sales were lower by 25-30 per cent compared to previous year. India’s gems and jewellery exports during November-December 2007 were around Rs 7,000 crore. This year due to crisis, there could be a 25 per cent drop in sales.
Since both volume and pricing has been hit, it will be a bad quarter?
Our volume has not taken a hit but our profitability has been affected. Volume remains stable as we have reworked our strategies and have begun to supply to bulk buyers. These bulk buyers offer us less margin so very less profits. But we have to accept that we need cash and cash advance for we do not want to take credit risk.
We, as a company, will some how maintain our revenues for we have already shuffled our sales to wholesale trade. But, the bottomline will definitely be affected. The profitability we are expecting it drop by 40 per cent lower compared to last year.
Many of the jewellery retail chains in the US and Europe are closing their outlets which are not doing well. How has that affected your company?
Retail chain and outlets used to account for a larger chunk of the profits as they were direct retailers. Now we have become careful about who we supply to and a decision has been taken at the board level to be very cautious and supply only where we get paid in cash.
They give us margins of 25 per cent whereas when we supply to a wholesaler they give only 2 per cent. So when I stop supplying to these retail outlets my profitability gets hit in a big way. This is happening for the last 2-3 quarters.
How are you managing the volatility in gold prices?
We are not affected by the volatility. We are a 100 per cent hedged company.
And what about diamonds? Can we expect any fall in diamond prices both globally and in domestic market, due to huge stockpiles built up in Mumbai and Surat?
I do not think we can expect a fall in prices. Wherever stockpiles have accumulated, it is with people who have the holding capacity.
|
Content Guide
