With the Indian stock market witnessing a robust growth in 2007, the success story has been studded with the overall performance of the gems and jewellery pack. As it is a fast growing sector with immense volatility, the scrips of the sector are sure to yield premium over other stocks for the investors in the long run.
Moreover, the IPO market is also going strong with a number of public issues which are already in the pipeline. A number of big jewellers from across the country are planning to raise money through public issues to execute their expansion plans.
Companies Eyeing Public Issue:
While companies such as Renaissance Jewellery and Shree Ganesh Jewellers are hoping to raise Rs. 400 crore from the Indian market, the trend is also evident in the international market. Two more big names, PP Jewellers and Mehrasons Jewellers, are also eyeing to bring public issue in the near future. Similarly, Kolkata-based Shree Ganesh Jewellers are toying with the idea of coming up with a public offer by March 2008.
In the gems and jewellery segment, as many as five big names are already in the fray. With the increased interest of the consumers in jewellery, especially the branded ones, the demand for gems and jewellery products has touched a new high. As a result of this, experts are expecting that more such public issues would come up in the near future.
One of the reasons why the gems and jewellery stocks are performing well on the bourses is that the market for jewellery in India is growing at a rapid pace. For the last five years, the industry is growing at a rate of over 10 per cent per annum.
Brand Value:
Another reason for the increased interest of the jewellers in the stock market is the brand value, which is attained by the company after being listed on the bourses. That is why more and more companies are getting aware of the benefits of getting listed on the stock exchange.
However, the most important reason behind for the increased interest is the robust growth posted by the major listed companies in the gems and jewellery segment. The share prices of these companies soared high in the recent past much to the delight of the investors. The share prices of Rajesh Exports witnessed a whopping surge of about 146 per cent since the beginning of 2007. Similarly, the share price of Flawless Diamond just doubled this year. A similar performance was witnessed by Gitanjali Gems which surged by about 76 per cent.
Analysts, however, continue to remain bearish on Vaibhav Gems and Classic Diamonds as their share prices witnessed a decline of approximately 38 per cent and 11 per cent respectively. Though some of them see a moderate growth for investors if they stay invested for the long term.
Promising & Growing Sector:
Gems and jewellery have always been treated as a promising and growing sector. Analysts believe that the stocks may, at times, lose their sheen but they continue to glitter in the long run with investors laughing their way to the bank.
The share prices of some of the jewellery and gems share may drop temporarily and growth may appear to be sluggish at times but these stocks are bound to rise and the investors are always optimistic enough to use every dip as a good opportunity to invest more in these promising scrips.
Festive Season Growth:
The top listed companies in the segment have strong fundamentals and investors can opt for these stocks, feel analysts. The festive season beginning in October and continuing till mid-November gave a strong push to the prices of the leading scrips in the gems and jewellery segment.
Share prices of key players like Gitanjali Gems, Classic Diamonds, Su-Raj Diamonds, Rajesh Exports, Flawless Diamond and Suashish Diamond witnessed moderate to robust growth in share prices during the festive season.
However, the soaring of prices of shares of the sector should not be mistaken to be a temporary affair as the top listed companies dealing in gems and jewellery boast of strong fundamentals which ensure long-term growth of your investment.
Popularity Growing:
The popularity of these stocks can be gauged by the fact that top mutual funds such as SBI Magmum Equity Fund, JM Equity Fund and Sundaram BNP Paribas India Leadership Fund have their holdings in stocks such as Gitanjali Gems and Rajesh Exports.
It was the result of the confidence shown by the investors in the segment that the IPO of Renaissance Jewellery was subscribed 23.63 times recently. The company is involved in the export of studded gold and platinum jewellery. The public issue was subscribed 10.5 times by retail investors and approximately 60 times by non-institutional investors. The company had set a price band of Rs. 125-150 per share.
Renaissance Jewellery is expected to utilize the proceeds in the company’s expansion plans in Bhavnagar and Mumbai. Owing to the positive response shown to these companies, more and more big players of the industry are mulling public issues in the near future.
Better than Debt Market:
Experts believe that raising money through IPO is better than opting for debt market as it turns out to be easier and cheaper. Besides, getting listed also adds to the brand value of the company and gives it a separate identity. A company, once listed, brings in greater transparency in business dealings and gains greater confidence to take up new projects.
Following the big names in the industry, Kolkata-based Shree Ganesh Jewellers are all set to enter the capital market in a couple of months. The company plans to raise something around Rs. 210 crore to Rs. 300 crore. Carving a niche for itself in the capital market is a big confidence booster for a company and helps a lot in its expansion plans.
For example, buoyed by its robust performance, Rajesh Exports is about to launch its chain of jewellery stores in the name of ‘Shubh’ in South India. The new venture is worth Rs. 350 crore in which the company plans to acquire jewellery shops in various cities and streamline the local market. The first store of Shubh jewellers will come up in Bangalore in December 2007. The company’s another venture Laabh is giving a tough contest to big brand names such as Tanishq. The company expects revenue of Rs. 1,000 crore next year as a result of its ambitious expansion plan.
The company also plans to set up similar retail stores in North India after its expansion plans are complete in south India. Mergers and acquisitions have also a role to play in adding to the growth prospects of these companies. Gitanjali Gems Ltd, which owns popular brands like Gili, Nakshatra and Asmi, recently acquired US-based retail chain Roger for US$20 million.
Last December, the company acquired Samuels, a US-based Rs. 450 crore jewellery chain. Gitanjali is planning to shift to Hyderabad where its new SEZ, dedicated solely to gems and jewellery, is being set up in an area of 200 acres.
World’s Biggest Diamond Processing Industry:
Presently, India has the world’s biggest diamond processing industry and more than 57 per cent of rough diamonds are cut and polished here. Most of these processors are located in the state of Gujarat. The industry aims at making India the hub of diamond trade.
One of the reasons why the gems and jewellery stocks are performing well on the bourses is that the market for jewellery in India is growing at a rapid pace. For the last five years, the industry is growing at a rate of over 10 per cent per annum.
According to a new report by the Gem and Jewellery Export Promotion Council of India and KPMG, by 2010, the total jewellery sales will be to the tune of approximately US$ 21 billion. The figure may go up to US$ 37 billion by the year 2015. Presently, India contributes to 8.3 per cent of jewellery sales in the world, the highest being that of the United States (31 per cent).
Demand Set to Grow:
Analysts feel that the demand for jewellery, gems and diamonds is set to grow in the future. The demand for diamond jewellery in India is set to grow over the years. It is being estimated that the market of diamond jewellery in India and China combined will be equivalent to that in the US by the year 2015.
The popularity of the gems and jewellery stocks is directly proportional to the growing awareness and craze about the major brands, which have captured the market. The demand and consumption of these brands has grown tremendously in the recent past. Moreover, with the disposable income of the people growing, these brands have gained popularity. The people are willing to spend more and are quite aware about major brands and what these have to offer them.
With US and European markets already saturated with more supply than demand, the international manufacturers are trying to have tie-ups with popular companies in India leading to mutual growth.
Increase in Gold & Silver Prices:
Experts also feel that constant increase in gold prices have added to the interest of the investors. This, coupled with growing demand for brands, has reflected positively on the prices of the shares of the gems and jewellery companies.
Similar is the case with silver, the price of which is going up at a steady pace. The demand for silver is going up owing to its growing usage in the gems and jewellery industry. It is expected that the prices of silver, along with gold, will touch new highs in the New Year.
The total consumption of silver in the country is to the tune of about 3,000-3,500 tonnes annually, which is likely to increase by the next year. Many stocks in the gems and jewellery segment, such as Gitanjali, Rajesh Exports, Goldiam, Suashish, Su-Raj and Vaibhav, have shown a decent growth and are performing well in a consistent manner. With more and more companies going for retailing and establishing a brand name, the future of the pack appears to be bright.
With the bridal season ahead, the share prices of the pack are expected to surge, as the major brands are likely to do brisk business. Brokers are quite bullish on Vaibhav Gems, Rajesh Exports and Classic Diamonds and hope that these stocks should do well. However, some feel that investors should look into the pros and cons of investing in some shares such as Parekh Platanic and SBIT.
Overall Condition Good:
In a nutshell, the overall condition of the gems and jewellery sector seems to be in perfect health. The exports of gems and jewellery also went up 21.5 per cent in the first half of the current fiscal. The total exports stood at US$ 9.38 billion as against US$ 8.01 billion in the corresponding period last fiscal. Gems and jewellery are one of the top five commodities exported from India.
The gems and jewellery exports are witnessing a firm rise as against the exporters of other commodities which are feeling the pressure of rising rupee on their figures. This year the growth is due to an increased demand from United States and Hong Kong. According to the World Gold Council (WGC), the international demand for gold jewellery was 37 per cent more than that in the second quarter of 2006.
Special Economic Zone in Delhi:
Moreover, a Special Economic Zone (SEZ) is likely to come up on the outskirts of New Delhi soon. About 136 acres land has been identified for the purpose. The prime areas of focus in the SEZ will be on gems, jewellery, trade fairs and fashion and lifestyle events. The government has decided to rope in diamond distributors and jewellery manufacturers. Jewellery centres and other commercial complexes, besides residential areas, will be developed in the SEZ.
Tie-ups Sought:
Attracted by the emerging market that India is, jewellery manufacturers are looking for tie-ups and buyers in India. With a sharp rise in the number of consumers, income and demand, they see immense potential in the Indian market.
They are taking to innovative means such as promoting their products through retailers and trade fairs etc. They feel that it may take time to establish themselves in India but the effort would be quite rewarding. With US and European markets already saturated with more supply than demand, the international manufacturers are trying to have tie-ups with popular companies in India leading to mutual growth.
Foreign Trend Weak:
However, the prevailing trend overseas does not augur well for public issues of jewellery companies. FUQI International Inc recently forayed on Nasdaq in the United States but the stock is hovering well below the issue price. Similar is the case with Damiani SpA, which introduced products co-designed with actor Brad Pitt.
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