On October 20, US private equity (PE) major Warburg Pincus announced its Rs 1,200-crore investment in Kerala-based Kalyan Jewellers for an undisclosed stake. This transaction lifted eyebrows, because the PE firm had reported a considerable loss in the same space in its previous investment.
Warburg competed with its peers Temasek, Apax Partners, Blackstone, Bain Capital and TPG Capital to pick up a stake in Kalyan Jewellers. Experts say these investors' interest point to the potential of branded retail jewellery chains in the country.
The domestic gems and jewellery sector had a market size of Rs 2.51 lakh crore in 2013, with the potential to touch Rs 5-5.3 lakh crore by 2018, according to a Ficci-AT Kearney report. Gold jewellery accounts for 30 per cent of this market.
About 80 per cent of the jewellery market consists of local and regional players. Such players, too, have been growing at 8-10 per cent over the past five years, according to industry experts. The domestic retail jewellery segment has seen a consistent year-on-year growth of 15-20 per cent and the sector will continue to expand at 20 per cent in the next few years, experts point out. It is this growth that has attracted PE firms.
Another factor attracting PE majors to the sector has been the gradual shift in jewellery retailing from the traditional way of retailing to the modern, organised way of marketing - both online and offline.
Before the Warburg Pincus-Kalyan deal, SAIF Partners had invested $13.1 million in Kolkata-based jewellery firm Senco Gold, early this month. In September, Ratan Tata, chairman emeritus of Tata Sons, invested an undisclosed amount in BlueStone.com, which in March had received about $10 million from Kalaari Capital, Accel India and Saama Capital.
In 2013, Progruss Investments invested $24.82 million in Shree Ganesh Jewellery and in 2012, Brand Capital invested in Gitanjali Brands.
Since 2012, Caratlane.com has raised about $20 million from Tiger Global. Earlier, Credit Suisse PE Asia had made a 74 per cent return on its investment in Shree Ganesh Jewellery by making a part-exit during its IPO in 2010. Gitanjali Gems also raised some PE funding.
A media report quoted Vani Kola, managing director of Kalaari Capital, one of the PE investors in BlueStone.com, an online jeweller, saying the branded jewellery has tremendous growth potential. Consumers will continue to look for great designs and trust in quality. PE players will be interested in online and offline jewellers. "I think there is tremendous opportunity for both," she said.
"This investment by Warburg Pincus reinforces the trust in the Kalyan brand name and will act as a fillip to the entire industry," says S Subramanian, managing director at Axis Capital, which acted as a financial adviser to Kalyan.
"Warburg Pincus' investment in Kalyan Jewellers is the largest private equity investment into the jewellery segment in India, and is an acknowledgment of the company's highly-talented team, its pioneering role within the industry, and its commitment to the highest levels of customer service. We are excited to partner with the team at Kalyan Jewellers as they continue to grow the business going forward," Warburg Pincus said in a statement.
Currently, organised jewellery retailers in India (national and regional) command about 20 per cent share of the Rs 2.5-lakh crore domestic gems and jewellery market, according to global consulting firm AT Kearney. Further, rating firm ICRA expects the domestic gold jewellery industry to record a robust growth of about 15 per cent over the medium- to long-term, aided by the growing penetration of the organised sector.
India's organised jewellery market accounts for a mere eight per cent of the total market worth $45 billion. Leading organised gold retailers include Titan, Kalyan Jewellers, Tribhovandas Bhimji Zaveri, PC Jeweller and Gitanjali Gems.