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Corporate - Interview


`We aim to be an integrated player in jewellery space'

Boby Kurian


Mr Rajesh Mehta, Chairman, Rajesh Exports

Bangalore , Oct. 18

RAJESH Exports Ltd (REL), gold jewellery manufacturer and major exporter and wholesaler of gold jewellery, struck a scorching pace of growth in the financial year 2003-04, when its topline vaulted over 12 times to Rs 3,050 crore from Rs 245 crore in the previous year.

REL was established as a partnership firm in the year 1989. The company went public in the year 1995 with a maiden public issue of 20 lakh shares of Rs 10 face value at a premium of Rs 40.

In 2002-03, the company set up one of the most modern jewellery manufacturing facility at Bangalore, which can process 250 tonnes of gold per annum. The optimum utilisation of the capacity would equal a value of Rs 12,000 crore annually. The company currently uses 25 per cent of the peak capacity, and plans to tap optimum capacity in the next five years.

Mr Rajesh Mehta, Chairman of REL, talks about the company's plans to emerge as a completely integrated player in the jewellery space.

Rajesh Exports has been in the limelight recently for the phenomenal topline jump that it registered in the last financial year, 2003-04. The company's revenues jumped more than 12 times. What are the factors behind this leap?

The gold and diamond jewellery market in India is estimated at Rs 70,000 crore, and the size of the same globally is $80 billion. Almost 98 per cent of the domestic market is in the unorganised sector, fragmented between one million-odd jewellers spread across the country. When we purveyed the scene in 1989-90 (the year when REL was set up ) we realised that India, despite its heritage and the tag of being the manufacturing hub of gold, was not able to make its presence felt in the global market due to lack of organised effort.

We started off with a small but as the first organised facility with 25 people. Since then the company has focused only on creating world-class infrastructure, which has resulted in a modern plant that can process 250 tonnes of gold into jewellery per annum — perhaps the largest in the world. For us, infrastructure also meant creating an organised marketing network, shaping up administrative systems and procedures (on how to manage movement of gold, hedging etc) and developing robust R&D capabilities.

So, when our plant was ready to go fully on stream in 2002-03, we decided it was time for us to firmly establish our presence and name in the gold jewellery market. We wanted to make it happen even by cutting back the prices a bit. That yielded results with the topline jumping almost 12 times to Rs 3,050 crore in 2003-04 from Rs 225.96 crore in the previous year. We are the largest gold jewellery exporter in the country (with revenues of Rs 2,300 crore) and a wholesaler in the four southern States where we practically supply to every single jeweller of reckoning.

How does the company operate in the export markets from where it derives the bulk of the revenues?

We cater only to the wholesaler/large distributor channel in the overseas markets, which in turn supplies to the large retailers or independent stores. We have two or three distributors each in our main markets like the US, UK, West Asia, Singapore and Australia.

However, we are now going direct to the overseas retailers, marketing and supplying directly to them. We will be doing this under our own branded gold jewellery. We will launch two brands shortly, one catering to the export market and the other to the domestic consumers. We are initially looking at 1,500 designs under each brand. We have already given samples to nine of the world's leading retailers in the US and in Europe and are hoping to find acceptance with five to six of them. On the domestic front, we will initially keep our brand with select jewellers in south India before looking at foraying into retailing within the next 18 to 24 months.

Having achieved a certain scale in operations, will the company press ahead with aggressive topline growth? How do you see the nature of operations changing from being a pure gold manufacturer and wholesaler?

We want to improve the bottomline as we go forward, which currently stands at 1.5 per cent of the topline revenues. We showed profit of Rs 26 crore on a turnover of Rs 3,050 crore in 2003-04 as compared to Rs 7.37 crore on revenues of Rs 225 crore in 2002-03 (4 per cent of the topline). We are looking at taking our bottomline back to the four per cent level and then gradually taking it higher to 8 per cent over a period of time.

We are confident of this as we are charting ways to become the only completely integrated company in our space. We are looking at buying or leasing gold mines in the next 36 months as we want to be fully integrated from mining to retailing that takes us to the end consumer.

We are also coming out with diamond-studded jewellery (targeted at both domestic and export markets) for the first time in the next two to three months. We can source cut and polish diamonds at competitive rates from Surat and Mumbai, and are investing close to Rs 40 crore into diamond venture that will be run by a professional team under a separate division.

The company's plan is to target topline revenues of Rs 10,000 crore in five years' time as we branch out and shed the image of pure play gold manufacturer and wholesaler.

When we hit the Rs 10,000-crore mark, we expect the company to generate 25 per cent of revenues from retailing, 25 to 40 per cent from gold jewellery exports, 15 per cent from diamond exports and wholesale and 20 per cent from the domestic wholesale trading of gold.

The growth plan that you are charting looks extremely ambitious. How will the company fund the expansion plans?

Further dilution of equity is needed. We have no inhibitions on that front as our quest is to emerge as a top world-class player in the jewellery space. As we talk now, we are sitting on reserves of Rs 125 crore but clearly that won't be enough.

We are looking at inducting a strategic partner and are in advanced level talks with a big NYSE-listed company that operates mines in South Africa and Australia.

We have not yet decided on the structure of the deal. It could be a case of both the parties buying into each other's business, or coming together to float a separate joint venture that would help our integration plans.

We expect it to happen within a year. As we see it, next year is going to be exciting.

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