Gems & Jewellery Market – India (Part II)

May 2010
Executive Summary

Gems and Jewellery (G&J) market in India was valued at USD 16 bn in 2008 and is expected to
grow at 9% CAGR
Market
G&J market includes – Gemstones like diamonds, colored stones and pearls; Precious metals and
Jewellery like gold & gold jewellery, silver jewellery and gemstones studded jewellery

Drivers: Mass appeal and growing income among households, low cost and abundance of skilled
labour, growing use of high-end technology, advantages of SEZs, changing consumer perceptions
Drivers and
and preferences, growing training institutes
Challenges

Challenges: Rising gold prices, competition from unorganized players, dependence on raw
material import, emerging threat from other countries

Growing organized retail space
Domestic players acquiring foreign companies

Trends
Aggressive marketing and advertising
Investments from PE firms

Large scale shows and exhibitions
Corporate houses enter the market

Government
Government has adopted various policies for the manufacturers in terms of Industrial Policy, FDI
Policy, Kimberley Certification Process and Hallmarking
Policies and

Initiatives of the Government include tax benefits, import duty relaxations, provisions for exports
Initiatives
and other initiatives

The market is largely dominated by the unorganized players making it very fragmented
Competition
Branded and designer jewellery is showing tremendous growth potential

Players are utilizing the high skilled labour available in India and are making considerable
improvements in their collections and services

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 2

•Introduction
•Value Chain
•Market Overview
•Drivers & Challenges
•Trends
•Government Bodies, Policies and Initiatives
•Competition
•Key Developments

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 3

Drivers & Challenges - Summary

Drivers
Mass appeal and growing income Challenges
among households
Rising gold prices
Low cost and abundance of skilled
labour Competition from unorganized players
Growing use of high-end technology
Dependence on raw material import

Advantages of SEZs Emerging threat from other countries

Changing consumer perceptions &
preferences

Growing training institutes

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 Wide scale appeal across consumers and rising income
levels is a major driver in the market
Mass appeal and growing income among households Impact
• Gems and jewellery is valued across consumers of all classes with predominance amongst the
upper middle class
• With growing consumer groups, taste for luxury items like branded jewellery, precious stones
and gems are set to rise
• Consumers across all classes in India consider jewellery symbol of respect and dignity and
specially gold is revered, treasured and valued at all festivals and marriages

The rich and the poor share the fascination of owning and gifting gold and silver jewellery at such occasions
• Growth in the average annual income by 10% annually will lead to further demand for luxury
products
Total No. of Per household annual Aggregate Annual Disposable
Household (mn) income (INR ‘000) Income (INR tn)

281 90
244 3%
12% 24%
207 2% 1% Globals >1000
5% 1% 1% 23% Strivers 500-1000
34% 23%
Seekers 200-500 44
44%
43% Aspirers 90-200 15%
9% 34%
33% 24 9%
Deprived <90 7%
34%
49%
30% 18% 49% 13% 33% 15%
23% 9% 3%
2005 2015e 2025e 2005 2015e 2025e

Source: Technopark “India Luxury Trends”, 2006; Articles-Updated.com “A Grand Step For Diamond Jewellery Market In The Corporate Gifting Sector”

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 5

 Low cost of diamond processing and cheaper labour
provides cost effectiveness to manufacturers
Low cost and abundance of skilled labour Impact
• The labour required for diamond and jewellery processing is found in abundance in India
• These labourers are characterized by high skill and low cost

In case of diamond cutting and polishing industry, the cost is ~USD 6 – USD 10 per stone

On an average a worker’s daily wage ranges between USD 3.2 – USD 4.3

Wages depend on the shape and quality of diamond polished
• Training for cutting and polishing gems is mostly tradition bound; the skill is handed down from
master craftsmen to family members who are employed in large numbers
• The number of people employed in this sector in India is huge

The jewellery industry employs ~1.5 mn workers

Diamond cutting industry employs over 800,000 people, which constitutes 94% of the global workers
• India also has a good number of technical designers who are well-versed in latest 2D and 3D design
softwares
Cost of Cutting and Polishing Diamond
USD
150
150
100
50 17
10
0
India China Belgium
Source: IBEF “Gems and Jewellery”, Feb 2010; The Business Line “Diamond workers in Surat seek higher pay”, Jul 2008; Spectrum tour “Jewellery in India”; Indextb “Gems
& Jewellery”, Indiabizclub “Gems and Jewellery-Overview”

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 6

 New methods and technology is helping players innovate
and is leading to faster turn around time
Growing use of high-end technology Impact
• Manufacturers are switching over to latest tools and technology for better and faster
production
• Gradual adoption of information technology (IT) in the diamond clusters is fostering benefits:

It enables seamless flow of information between the functional units providing the necessary platform for
firms to scale up their operations
• Traditional manual methods of polishing, manufacturing and designing have been replaced with
hi-tech, speedy and effective machinery and software
• However, the ratio of manual to machinery oriented work in the industry remains dictated by
the former

In the jewellery industry is 70:30 and in case of diamonds it is 40:60
• Some of the advanced technologies used in the Indian G&J industry include:

Automatic Polishing Units

Nanotechnology: To ensure steep reduction in vibration levels in laser sawing, polishing and manual-sawing

Inclusion Plotting Machine: Analyzes impurities in the gemstone

Pin Diode: Used to identify metals like iridium and ruthenium which are clandestinely used in jewellery
manufacturing

Fiber Laser: Has capacity of 15,000 working hours and above, consumes less power and requires less
maintenance as compared to regular lasers

Auto Blocking Machines: Used for polishing diamonds

SAP solutions for G&J companies
• The Indian colored gemstone industry has expanded enormously from its traditional roots

Most exporters in the country have incorporated the latest polishing machines and state-of-the-art
technology into their setup
Source: Outlook India “Despite Short Term Setback,Indian Gems Ind Poised to Glitter”, Feb 2010; BizTech2 “ERP Solution For Indian Gem And Jewellery Industry”, Sep
2007; Diamond World “Indian Diamond & Jewellery Industries Turning to the Technical Lane!”, Feb 2007

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 7

 SEZs have greater advantage in terms of government
structure and provide impetus for growth
Advantages of SEZs Impact
• The Central/State government and a few major G&J players have set up various special
economic zones (SEZ) and Export Oriented Units (EOUs)
• G&J units in SEZs and EOUs receive precious metal, viz, gold/silver/platinum prior to exports or
post exports equivalent to value of jewellery exported

This means that they can bring export proceeds in kind against the present restriction of bringing in cash
• SEZs units have various other advantages

No custom or excise duty

No minimum alternate tax (MAT)

Enjoy exemptions from a number of taxes like central sales tax, service tax, securities transaction tax etc.

Freedom for sub contracting

Facility to retain 100% foreign exchange receipts in the export earners foreign currency account

No net foreign exchange earning requirement imposed

SEZs in India for G&J sector

Status Number
Formal Approvals 12
In-principle Approvals 4
Operational SEZs 4
Notified SEZs 5

Source: IBEF “Gems and Jewellery”, Feb 2010; SEZINDIA “Gujarat”

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 Changing consumer preferences towards designer jewellery
and trend of corporate gifting is driving the market
Changing consumer perceptions and preferences Impact
• Consumer perceptions as to the purchase of diamonds and branded jewellery is experiencing a
huge change

Shift in preference towards machine made jewellery over the traditional handcrafted jewellery

Rising demand for branded jewellery

Demand for fashionable, lightweight and innovative designs is increasing
• The dominant consumers in terms of corporate gifting of diamond jewellery has increased
steadily in major pharmaceutical companies and electronic companies

Diamond jewellery products are also used for cross promotions by many travel agencies, cosmetic
manufacturers, clothing industries etc.

~7% of the market sales of diamond jewellery was seen through corporate gifting and is seen to grow at
~20% per year

Even in the banking and service sector, this kind of jewellery has worked as an effective promotional tool
– Many well known banks present their premium customers with small branded diamond pendants on becoming the proud
owner of their gold credit card and such other schemes
• Primarily, gold and gold jewellery is regarded as investment, as they can be easily converted to
cash through sale and can also be used as loan guarantees

Source: IBEF “Gems and Jewellery”; Articles-Updated.com “A Grand Step For Diamond Jewellery Market In The Corporate Gifting Sector”

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 9

 Training institutes nurturing growth in new design through
the adoption of new technologies
Growing training institutes Impact
• India has been rise in the number of G&J training centres that has helped jewellery
manufacturers to hire professional designers
• Some of the main objectives of these institutes are:

Promotion and research

Retain traditional Indian skills

Bring new and creative designs to the market

Compete with the international market
• Fashion institutes, like NIFT (National Institute of Fashion Technology) are also offering courses
in gems and jewellery designing creating a regular supply of trained manpower

Institute name Description

Gemmological • Established in 1971 for the promotion, propagation and development of the science of gemstones and
Institute of India research studies in India
(GII) • First non profit research and educational organization in the field of Gemology in India
• Is a public institution founded by the Gem and Jewellery Exporters' Association, Bombay
Jewellery Design • Founded in 1999 to provide skilled professionals to the ever-growing jewellery industry under the aegis
and Technology of BKN Education Society
Institute (JDTI) • It is a non profit making society under the Societies Registration Act 1860
• JDTI is promoted by the Indo-German Export Promotion Project and supported by World Gold Council
Indian Institute of • It is a private institute and is running without any support from Government or trade body
Gemology • A member of the Indian Diamond Institute Society and PHD Chamber of Commerce and Industry
Source: Outlook India “Despite Short Term Setback,Indian Gems Ind Poised to Glitter”, Feb 2010; BizTech2 “ERP Solution For Indian Gem And Jewellery Industry”, Sep 2007

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 10

 Frequent changes in gold prices effects consumer buying
patterns and pricing strategies of players
Rising gold prices Impact
• Gold price fluctuations have created a negative impact on the pricing strategies of the jewellery
manufacturers

This has contributed to a decline in gold jewellery demand worldwide

India’s gold jewellery exports grew by only 8.07% during FY ‘08
• With recessionary trends setting in to the US and other countries, major players found it difficult
to meet profit margins due to the fluctuating prices
• Moreover, gold prices are subject to a lot of speculation in the stock market as it is traded as a
commodity in the exchange bodies like MCX and NCDEX

Consumer trends exhibit changes in buying patterns with this frequent speculation

They also delay new purchases clearly indicating the price sensitive nature of the Indian market

Gold Prices

USD/ounce -5%
1,500
1,113.3
968.4 924.3
1,000 +20%
654.9
557.1
434.3
500

0
Mar -05 Mar -06 Mar -07 Mar -08 Mar -09 Mar -10
Source: IBEF “Gems and Jewellery”, Feb 2010; icharts Business Service “Gold Price Per Ounce (Monthly); Austin Gold Information Network

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 11

 Differences in pricing and low penetration creates pressure
on the organized players
Competition from unorganized players Impact
• Domestic G&J market is dominated by a large number of unorganized players, especially in the
gold jewellery segment

In the Indian G&J market, unorganized sector comprises of 96% and organized of 4%
• A number of family owned jewellery stores are present in the market

There are more than 6,000 players in domestic diamond processing industry
• Entry into the sector is easy and is not characterized by stringent barriers

The average gestation period for setting up a diamond cutting and polishing unit is 15 months

Low gestation period, coupled with low capital cost allows new players to enter the market

This has led to the industry being largely characterized by a substantial number of small scale players
• Increasing competition in the industry has ensured that firms work towards increasing their
productivity and innovate thereby improving overall capability levels within the industry
• Indian consumers are prone to purchase bulk jewellery during occasions such as marriages from
family jewellers who give them price considerations with suitability of various designs

However, smaller jewellery items like rings and pendants are being increasingly catered by branded retail
jewellers
• Organized players in an attempt to narrow the gap have to undertake major promotional
strategies to popularize their products which puts tremendous pressure on their profit margins

Source: IBEF “Gems and Jewellery”

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 High dependence on raw materials from foreign countries
increases the production costs
Dependence on raw material import Impact
• In the manufacturing of G&J, raw materials constitute around 90% of production costs
• India’s gems and jewellery industry is highly dependent on overseas mining and trading centers
for its raw material supplies

Herein, security of supplies is an important concern for the players

Diamond roughs, which form the largest part of the industry’s imports, are largely imported from the 3
major trading centers of Antwerp, London and Tel Aviv
• With limited domestic sources of diamond roughs and gold, the industry imported around USD
7.9 bn worth of diamond roughs and USD 4.6 bn worth of gold bars during Apr 2008 – Mar 2009
• The Government is looking to minimize these risks by directly purchasing raw materials from the
producing countries

Source: IBEF “Gems and Jewellery”, Feb 2010

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 Increasing efforts to climb the value chain by the
neighbouring countries have posed a threat
Emerging threat from other countries Impact
• Moreover, India’s G&J exports also face emerging competition from mainly African mineral
producing nations that have sought to increase their presence across the value chain
• In terms of the processing of diamonds and gold mined in their countries, African producers like
Angola, Botswana, Namibia and South Africa who account for around 50% of the world’s
diamond production - have sought to establish cutting and polishing centers in the region

These countries are considering imposing export duties (ranging from 5-7% ) on rough diamonds, which
would raise costs for Indian processors as they would not be able to pass on these costs

Some African countries have also considered restrictions on 100% export of diamond roughs, with the aim to
divert some production towards their local processors
• China is fast emerging as a major exporter of cut and polished diamonds and a significant
competitor for the Indian G&J industry with cheap labor, modern and automated factories

Source: IBEF “Gems and Jewellery”, Feb 2010

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 14

•Introduction
•Value Chain
•Market Overview
•Drivers & Challenges
•Trends
•Government Bodies, Policies and Initiatives
•Competition
•Key Developments

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 15

Key Trends - Summary

Growing organized retail space

Aggressive marketing and advertising

Large scale shows and exhibitions

Trends `

Domestic players acquiring foreign companies

Investments from PE firms

Corporate houses enter the market

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 16

 Expansion in luxury retail is setting the platform to boost
designer jewellery market and players
Growing organized retail space
• India is witnessing phenomenal growth in organized retail with rising number of departmental
stores, hyper markets, multi brand outlets Players focusing
• In India, luxury retail is still at a nascent stage but is growing at a fast pace on the visibility
• Luxury malls offering high-end products are being developed for the affluent consumer group in of their products
the country
• International and domestic brands offering designer jewellery are setting up shops at these
establishments as it helps branding. Some of the leading players exploiting this space are:

Tanishq Diamonds has 117 exclusive boutiques across 78 cities

Concept Jewellery (India) Pvt. Ltd., the owner of Adora Diamonds, has 117 outlets in 47 cities

Damas India added 16 new stores to the 12 stores it currently has in India

Reliance Retail is planning an aggressive entry into the jewellery retail market; it is opening between 400 to
500 jewellery retail outlets across India, as of 2008 it had already opened 13 stores
Market Size of Luxury Retail Luxury Market
0 1 2 3 4 Luxury Retail
USD bn Luxury Assets
62%
2008 1.2 Luxury Services
17%
+25%

2013 3.5
22%

Source: Value “India Luxury Retail Market: A long-term bet”, Nov 2008; Livemint “Retail Sector to grow to $410 bn by 2010:Assocham”, Dec 2009

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 17

 Players are improving their marketing strategies by creating
brand ambassadors for their products
Aggressive marketing and advertising
• Creating consumer awareness regarding the presence of branded jewellery and exclusive
collections and diamonds is extremely important for players to compete in the market Brand
ambassadors
• Players have also formulated strategies of launching seasonal collections to attract various
used to promote
segments of consumers
products
• Players being conscious about this fact have undertaken advertising and marketing strategies to
market their products very aggressively
• Leading brands have roped in popular faces from the Hindi film industry and sports fraternity as
their brand ambassadors
• Players in this space advertise their products through television advertisements, hoardings, via
newspapers and magazines. Leading players also conduct fashion shows where the brand
ambassadors displays the products

Player Brands Brand Ambassadors

• Preity Zinta – D’damas
D’damas/
Gitanjali Group • Kareena Kapoor – ‘Parineeta’ collection
Nakshatra
• Katrina Kaif – ‘Nakshatra’
Tata Group Tanishq • Bollywood actress Asin – ‘Blush’ collection
Anant Diamond Jewellery Anant • Sonam Kapoor
Concept Jewellery (India) Ltd. Adora • Lata Mangeshkar – ‘Swaranjali’ collection

Source: Articles-Updated.com “A Grand Step For Diamond Jewellery Market In The Corporate Gifting Sector”

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 18

 Large scale fairs and exhibitions help branded jewellery
players to showcase their products
Large scale shows and exhibitions
• The Indian branded jewellery players are constantly involved in promotional shows and
exhibitions which have emerged as a very comprehensive tool for showcasing their collections Promotional
exhibitions to
• Support from government bodies set up for promoting G&J sector in India, they cover a large
showcase
base of consumers and also enhance B2B relations
collections

Mass advertising through newspapers and radio announcements help generate awareness among people

These are more popular during festival times and marriage seasons in India
• Discounts on bulk buying, free gifts on expensive jewellery are used to catch consumer
attention

Shows Description
• One of the leading Asian jewellery exhibitions held annually in India
Indian International Jewellery
• Hosted by the GJEPC, to promote exports of gems and jewellery from India, and
Show
is sponsored by the Ministry of Commerce, Government of India
• The show displays a wide variety of fine gems and jewellery which attracts
Jaipur Jewellery Fashion Show
fashion designers
Gem & Jewellery India
• Generally held in Chennai where manufacturers from abroad also assemble
International Exhibition
• Generally held in Jaipur where in leading jewellers across the country showcase
Jewellers Association Show
their collections

Source: Biztradeshows “Trade shows”; Bullion Vault “Gold jewellery Booming in India”, Feb 2008

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 Major players from domestic market are acquiring stake in
foreign companies to expand reach
Domestic players acquiring foreign companies
• Major Indian G&J players are showing large interest in acquiring stakes in foreign jewellery
companies Indian players

This in turn helps them to increase their reach and expand their customer base
acquiring stakes

It helps in cost saving through procurement of easy raw materials for production
in foreign
companies

It ha allowed companies to diversify their product portfolios

Promotes their B2B relations
• Although, this phenomenon is more confined to the major companies of India, a larger number
of small companies are also trying to adopt this strategy

Companies Description
• Bought 97% stake in US-based jewellery retailer, Samuels Jewelers Inc. in Dec 2006
• Acquired a US-based jewellery chain Rogers for USD 18.5 mn in Nov 2007
Gitanjali Gems Ltd.
• Bought ‘Nakshatra’, brand of jewellery promoted by DTC for ~INR 1 bn through its Dubai-
based subsidiary, Gitanjali Ventures
• Acquired a majority stake in US-based Simon Golub & Sons Inc. (SGS), one of the top 5
Shrenuj & Co. Ltd.
jewellery distributors in America at USD 22.7 mn

Source: Biztradeshows “Trade shows”; Bullion Vault “Gold jewellery Booming in India”, Feb 2008

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 20

 Various corporate houses and PE firms showing interest in
branded jewellery companies which promotes branding
Investments from PE firms
• There is an increasing trend amongst the foreign companies of diversified conglomerates to
enter into deals with the Indian players Growing
• Largely, PE firms are showing interest in tying up with the players in the Indian industry owing number of PE
to their large scale operations investments
• Some of them include:

Goldman Sachs and UBS Securities – They acquired 6.28% in Shrenuj & Co. at USD 2.07 mn and USD 2 mn
respectively

Morgan Stanley, Citigroup, Goldman Sachs and BSMA Ltd. – They collectively purchased a 7% stake in
Gitanjali Gems for ~USD 7.8 mn

Nalanda Capital Pte Ltd – It picked up a 14.9% stake in precious stones and jewellery maker Vaibhav Gems

Corporate houses enter the market

• Big Indian corporate houses are venturing into branded jewellery market and opening chain of
retail shops Increasing
interest of
• Large number of luxury goods brands are also tying up with branded jewellery retail chains to
companies in
showcase their products
jewellery chains

This in turn increases the foot falls of consumers and creates greater visual appeal
• Some of them are:

Reliance Retail – Planning to enter jewellery segment with 400 retail outlets

Swarovski – The global crystal goods manufacturer and marketer plans to set up 30 stores

Tata Group – The owner of Tanishq brand has luxury watch brand ‘Xylys’
Source: Articles-Updated.com “A Grand Step For Diamond Jewellery Market In The Corporate Gifting Sector”; Bullion Vault “Gold jewellery Booming in India”, Feb 2008

GEMS & JEWELLERY MARKET IN INDIA 2010.PPT 21

 Thank you for the attention
The Gems & Jewellery Market report is part of Research on India’s Consumer Goods industry.
For more detailed information or customized research requirements please contact:
Gagan Uppal Gaurav Kumar
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