 "Shreyas K Doshi")
At a time when gold jewelery exports have fallen sharply in June quarter, diamond exports have gone up sharply. “Banks need to differentiate between plain gold and diamond jewellery,” said Shreyas K Doshi, Chairman and Managing Director of Shrenuj & Co which is active in the value chain from sourcing rough diamond, manufacturing to retailing and ranked amongst top three diamond jewelery company in the country having total revenues of Rs 3,800 crore. He talks at length with Rajesh Bhayani on issues in diamond jewellery industry.
Some of the big jewellery firms are facing troubles after sharp fall in gold prices. Do you think the problem is spreading wider in the gem and jewellery companies?
The problem that we have seen in recent past has been in to gold and gold jewellery sector. Contrary to that diamond sector is doing very well. Even on export front, while gold jewellery exports fell 58% in June quarter exports of cut and polished diamonds went up 34% in dollar terms. I feel diamonds and diamond studded jewellery export will continue to rise gradually. The reason; there is no speculation involved in diamonds.
How falling rupee has impacted the business and helped exports?
While on overall bases because of nearly 70% content in diamond jewellery is imported and hence there is natural hedge against the currency fluctuations. However, falling rupee has affected finances of exporting companies. However, due to sharp fall in rupee in short period, credit limits of diamond companies have been impacted.
Credit limits for getting dollars are decided in rupee terms by the banks. Hence companies that received dollar credits in April will get lower credits when they approach again to the bank. This is because despite the fact that their export proceeds are in dollars, the limits decided in Indian rupee terms will come down if rupee exchange rate falls.
Such a policy creates cash flow mismatch and smaller companies will see more impact. Simply because of the policy of fixing dollar credit limits in rupee terms, when rupee falls banks consider credits as overdrawn loans as same amount in rupee terms will fetch less dollars.
What can banks do?
Banks should change their approach in this regards and ensure that the sector which is doing well and a stable performer in export market should not get affected. While this approach of banks does not affect balance sheets, it hurts when business at its peak and companies have less flexibility in making good overdrawn part of loans. Banks should not consider changes in exchange rates for credit limits. Banks should also differentiate between plain gold jewellery, bullion and diamond jewellery.
How have rising rough prices have impacted the processing business?
In 2013 rough diamond prices have gone up 7-8% but they are still lower than 2011 levels. Going forward there is limited scope of increase in prices. Against this, polished diamond prices have shown marginal rise last year but going forward, prices will go up faster.
How is the export market changing with China slowing and Euro Zone still not out of the woods?
Improvement in US is a big positive for exporters from India and diamond exporters are set for take benefits of improvement in their conventional market. West Asia market is also doing well. Jewellers there have resorted to restocking for ensuing season. Retailers are converting their cash in to diamond jewellery as they expect good demand season in coming festivals till Chinese new year. Export will grow at over 20% this fiscal.
But domestic demand scene is not that good?
Domestic demand is down by 5-7%. We have seen a trend where demand has started moving from gold jewellery to Diamond studded jewellery. This changing trend will result in diamond studded jewellery sector growing at 7% this year compared to almost flat (1-2%) growth last year. However this has its significance. Some consolidation has begun in the sector where big firms are taking over small processors. Business is slipping in a few hands.
How processors are responding to the challenge?
In traditional diamond processing states like Gujarat, there is shortage of skilled workers and in Gujarat cutting and polishing charges have also gone up. As a result, processors are looking at other places for incremental jobs. Shrenuj has set up a first cutting and polishing factory in Patna to process smaller sized diamonds. We have shifted jobs that are costlier if done in Gujarat unit. However, we continue to increase our diamond polishing business in Gujarat for higher sizes and using advanced technology.
