A Gem in India’s Crown

Group No. 03

Abhijit Sharma Roll No. 01Harshvardhan Roll No. 21Koushik Kumar Roll No. 23Md. Zia Roll No. 26Raman Pathak Roll No. 34

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Chairman’s Desk

“Since 1966, Gitanjali has come a long way. Our strength and success can be attributed to our efficient management, modern operation systems, uncompromising quality control and dynamic workforce; but above all, it is our desire and vision that has accentuated our growth”.

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Company Overview

• Founded as a single company cutting and polishing diamonds for the Jewellery trade at Surat, Gujarat, in 1966 headed by Mr. Mehul Choksi .

• Incorporated on August 21, 1986 as a private limited company and subsequently converted into Gitanjali Gems Limited.

• One of largest manufacturer and retailer of diamonds and Jewellery in India.

• Operations included sourcing of rough diamonds from primary and secondary source suppliers in the international market, cutting and polishing the rough diamonds for exports to international markets and the manufacture and sale of diamond and other Jewellery through retail operations in India as well as in international markets.

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Approach Used For Case Study Analysis

• Identifying the External and Internal Factors affecting

Gitanjali Gems Ltd.

• Initiatives taken by Gitanjali Gems Ltd.

• Gitanjali Gems – The Road Ahead.

Industry Overview - India

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• Diamonds manufacturing industry in india was one of the largest components of the global trade.

• Until 18th century, India was the only known source of diamonds in the world.

• India occupied a prominent place in the global diamond industry and established its position as the largest exporter of cut and polished diamonds in the world. The gems and Jewellery industry formed the single largest component of merchandise exports in the country.

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External Factors

• The Diamond Manufacturing Industry

• Gems and Jewellery Industry (India)

• Structure of Gems and Jewellery Industry in India

• Retailing of Diamond Jewellery

• Gold Jewellery

• Branded Jewellery in India

• Government Initiatives and Regulations

• Gems and Jewellery Export Promotion Council

• Demand Conditions

• Supply Conditions

• Competition

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Industry Overview – Worldwide (1/2)

• The diamond manufacturing industry is dependent on the supply of rough diamonds.

• Countries like Australia, Botswana, Russia, South Africa are the major suppliers and constituted most of the diamond mining market, estimated at 137.2 million carats in 2003.

• India’s share is 1 million carats per year.

• Production wise Australia produces 25%, Botswana 22% and South Africa 9% world wide.

• De Beers Consolidated Diamonds Company, (SA) is the largest diamond miner in the world contributing 40% of global diamond production by value. Rio-Tinto and BHP biliton Inc. were other major corporate.

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Industry Overview – Worldwide (2/2)• India diamond dated back to 8,000 B.C. ; It continued to be the only known

source of diamonds until the 18th century.

• India lost its prominence as a diamond producer as other location were discovered in south Africa and Latin America. However, India continued to remain a key player in the global diamond industry as the leading diamond processor in the world.

• Craftsmanship and low cost of processors gave a competitive advantage in diamond cutting and polishing. India accounted 55% of global polished diamond market in terms of value, 80% in terms of caratage and 92% in terms of pieces.

• Mined diamonds were distributed for further processing to cutting and polishing centers around the world.

• India Sourced most of the diamonds from 7 countries. Diamond Trading Corporation(DTC) was the largest diamond distributer and accounted for approx. 50% of world wide distribution of rough diamonds.#

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Cut and Polished Diamonds• India, China Israel and Belgium were the leading countries engaged in diamond

cutting and polishing globally.

• CAGR grew at the rate of 15.6% for exports in India. Major export destination were USA, Hong Kong, Belgium and UAE for cut and polished diamonds.

• A bulk of India’s diamond processing sector was unorganized and employed about 2 million workers in approx. 1,00,000 diamond manufacturing units.

• Indian players was largely restricted to the lower-sized and lower-valued market.

• High-value market was dominated by European manufactures.

• Indian Jewellery industry appointed trained people called jewel technologists. Leading companies like Hammer Plus, M Suresh promoted Adora brand and Intergold, all hired jewel technologists to face global competition.

• Indian Institute of Jewellery(IIJ), SNDT women’s college and Gemmological Institute of India updated their curriculum to train engineers for the industry.#

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Gems and Jewellery Industry (India)• Gems and Jewellery Industry has played a crucial role in the

Indian economy.

• The contribution made by the Industry in terms of exports from India stood at Rs.703.75 billion in FY 2005 accounting for about 19.7% of Indian Exports.

• Exports from gems and Jewellery also recorded 18.8% CAGR.

• The contribution has grown gigantically by 95% where in India exported worth Rs. 8,641.36 crores (US$ 1,941.88 million), in the month of April, 2010 showing a substantial growth of 115.62% (91.67% in rupees term) as compared to US$ 900.59 million (rupees 4,508.35 crores) for the same period of the previous year.

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Structure of Gems and Jewellery in India• The gems and Jewellery sector was classified into the following

sub-sectors based on characteristics, manufacturing processes and position in the value chain:

• Gemstones:- diamonds and precious, semi- precious and synthetic colored stones.

• Jewellery:- Gold Jewellery, studded Jewellery and silver Jewellery

• Pearls

Gold Jewellery (domestic Consumption) and diamonds (major

portion exported) were the significant constituents of the industry.#

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Retailing of Diamond Jewellery

• USA, the largest consumer of retail diamond Jewellery, accounting for 48% of world’s diamond Jewellery consumption.

• India, being the largest supplier to USA in lower – sized diamonds, also catering to Japan, second largest consumer.

• China, second largest supplier competing with India.

• Manufacturers in India were targeting these markets by setting up retail distribution channels.

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Gold Jewellery

• In India, gold is a preferred form of Jewellery and a popular investment vehicle for savings after gold deposits.

• Majority of gold demands are met through imports

• In 2004, India accounted for 0.4% of total gold production making it the largest importer of gold in the world.

• Indian export of gold Jewellery were Rs. 17.3 billion in FY 2004 – 2005. Gold export from India increased at a CAGR of 34.4%.

• UAE & USA were the major export destination and constituted approx 85% of gold Jewellery exports from India in FY 2005.

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Branded Jewellery in India• Branded Jewellery was a recent phenomena in India, as most

Jewellery retailed in the unorganized sector. Local population and most purchases were made on the trust and on the basis of reputation of the local jeweler.

• Tanishq & Gili were among the earliest Jewellery brands in India.

• Branding of Jewellery in India was adopted from the international markets, positioned as lifestyle and personality statement.

• Introduction of Value Added Services like Certification of Gold & Diamonds and Life Time return and buy – back schemes gave a boost to branded Jewellery in India.

• New generation preferred to buy branded Jewellery.

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Retailing Formats for Branded Jewellery in India

• Exclusive outlets at the malls and other shopping centers.

• Kiosks/displays in departmental stores and malls.

• Display of branded Jewellery in shops of local jewelers.

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Government Initiatives and Regulations• Duty – free imports of rough diamonds.

• Waiver of customs duty on colored, rough gemstones and semi – processed, half – cut and broken diamonds.

• • Exim Policy 2002 – 07 focused on exports of gems and Jewellery through

market active initiatives schemes, duty free adjustments.

• Reduction of import tariff on cut and polished diamonds and gemstones from 15% to 5%.

• Under Industrial Policy & FEMA, FDI investment up to 100% was permitted in gems and Jewellery Industry.

• Under Foreign Trade Policy 2004 – 2009, cutting and polishing of gems and Jewellery was treated as manufacturing for the purposes of exemption under section 10A of the Income Tax Act.

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EXIM Policy 2009 – 2010 (Gems & Jewellery)

• STCL Limited, Diamond India Limited, MSTC Limited, Gem & Jewellery Export Promotion Council and Star Trading Houses (for gem and Jewellery sector) have been added under the list of nominated agencies notified under Para 4A.4 of Foreign Trade Policy for the purpose of import of precious metals.

• Import restrictions on worked corals have been removed to address the grievance of gem and Jewellery exporters.

• Authorized person of Gem & Jewellery units in Export Oriented Units shall be allowed personal carriage of gold in primary form up to 10 kg in a financial year subject to RBI and customs guidelines.

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Gems and Jewellery Export Promotion Council (GJEPC)

• The Government of India designated the Gems and Jewellery Export Promotional Council as the importing and exporting authority in India.

• The GJEPC targeted exports were worth $20 billion by 2007, which increased by $28.41 billion by 2009 – 2010.

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Demand Conditions

• Demand depends on various factors such as• Economic growth• Employment levels • Income levels• Tax rates• Credit availability • Styles offered by various gems and Jewellery producers also

effects market demand.

• Promotion is the key success factor for various brands.

• Seasonal Purchases play a vital role in this Industry

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Supply Conditions

• Price fluctuations in process of precious metals and precious and semi – precious stones.

• Monopolistic approach to restrict supply of rough diamonds throughout the world (i.e., Cartels).

• Increase in price of diamonds adversely affected consumer demand causing decline in sale.

• Changes in currency exchanges influence cost of inputs and outputs. ($).

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Competition (1/3)

• Current & Political Competitors Include:• Independent Jewellery Stores• Retail Jewellery Store Chains• Wholesale diamond traders

• Competition based on:• Quality

• Design

• Availability

• Pricing

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Primary Competitors:

• Mehrasons Jewellers (Delhi)

• Tribhuvandas Bhimji Zaveri (Mumbai)

• B.C. Sen and P.C.Chandra (Kolkata)

• G.R.Thanga Maligai (Chennai)

• C. Krishnaiah Chetty (Bangalore)

• Tanishq (set – up in 1994 gave tough competition by way of reducing manufacturing costs, quick deliveries, reduced inventory holding, quicker communication and elimination of logistics costs and quicker lead time.

Competition (2/3)

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Competition (3/3)

• Laxmi Dia Jewel Pvt Ltd , Surat was the second largest exporter of polished diamonds.

• Rajesh Exports Ltd (Bangalore) was the world’s largest gold Jewellery manufacturer and the country largest exporter of gold Jewellery.

• Swarnmandir Jewel Designer (Karnataka) was known for its exclusive designer series (916) handicraft gold Jewellery.

• Platinum Guild International (Platinum Jewellery Brands) (“Dew Drops”).

• Zirconium Jewellery was gaining popularity by Brand “Ishtaa”.

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Internal Factors• Infrastructure

• Human Resources

• Technology

• Procurement

• Manufacturing

• Marketing

• Distribution

• Customer Relationship Management

• Acquisitions & Alliances

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• Integrated diamond and Jewellery manufacturing company and one of the largest manufacturers and retailers in India.

• Accorded a “sightholder” status with DTC in 1968, one of the first in India.

• Initially limited to manufacturing and export of cut and polished diamonds to various international markets.

• In 1990 commenced production and in 1994 opened retail sales of Gili, one of the first branded Jewellery lines introduced and awarded a “superbrand” status by Times Of India in 2004.

Gitanjali Gems

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Infrastructure

• Diminco Pacific Manufacturing Co Ltd (China)• Gemsiam Manufacturing Co Ltd (Thailand)• Hai Duong Diamond Factory (Vietnam)• Special Economic Zone (Gujarat) • Diamond Cutting & Polishing (Mumbai)• Santacruz Electronic Export Processing Unit (Mumbai)• Two Modern Jewellery Manufacturing Facilities (Mumbai, Hyderabad)• Sophisticated manufacturing facilities, strong design capabilities and focus

on stringent quality control.• Large customer-base outside India, including jewelry manufacturing , large

deparmental store chains, retail store and wholesalers.

Specialized factories in different parts of the world.

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• 2,300 employees as on 2005 • Out of which 1,800 employees at manufacturing facilities• More than 250 employees in retail operations • 410 full – time employees • Out of which 117 employees at Corporate office• Senior Management with significant Industry experience was instrumental in

the consistent growth in revenues and operations. • Employee motivation and empowerment were the key to competitive

advantage.• Regular Staff Training Programs• Leadership Programs• Performance Enhancement Programs • Benefits to employees included medical expenses, housing or rent assistance,

annual leave and travel allowance, PF, healthcare, schooling, pension and group gratuity .

Human Resource

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Technology

• Achieved an International first by perforating heart cut diamonds and making them available in affordable process between Rs. 1,000 to 6,000.

• It took two years and 250 carats value at Rs. 2 crore for Gitanjali Laser House to perfect the technology.

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Procurement (1/2)

• Operations and revenues were dependent upon availability of rough diamonds.

• World's know sources were Angola, Australia, Botswana, Brazil, Canada, Ghana, Russia, South Africa.

• Procurement at competitive prices from Diamond Trading Company (DTC), De Beers, S.A from London and South Africa to a selected groups or “Sight Holders”

• Gitanjali’s employees attended offerings of rough diamonds held by DTC periodically at London.

• At Sight, they purchased a “series” of composite rough diamonds at DTC’s stated price.

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Procurement (2/2)

• In 2000, DTC announced significant changes in its approach to rough diamond marketing by stopping open market purchases, alter its market control and pricing policies by way of “Supplier of choice” marketing programs.

• Gitanjali was able to combat these changes by broadening the sales base and implemented strict inventory, pricing and purchase controls to decrease the impact of price fluctuation.

• Sophisticated rough diamond evaluation program and inventory utilization programs.

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Manufacturing

• Diamond Manufacturing was a Labor Intensive process requiring specialized knowledge and skills.

• Steps Involved in Diamond Manufacturing

Marking

Cleaving

Sawing

Cutting Polishing

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Marketing (1/2)• Offering a comprehensive range of diamonds and other

Jewellery products aimed at:

• Various Jewellery categories.

• Different customers and price segments.

• During various festive and social occasions by offering custom made Jewellery.

• Branded Jewellery enjoyed significant brand equity which gave Gitanjali a competitive edge.

• The sub collection “D Damas” was particularly noted for Wedding and general collection.

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Marketing (2/2)• The company was under the process of registering 24 trademarks in India in connection

with braded Jewellery lines. Innovative designs and product lines enabled Getanjali to develop brand and increase retail sales.

• Gili brand was introduced in 1994 and was among the first branded Jewellery introduced in India.

• DTC permitted Gitanjali another three site holders and this paved way for launching the new products under the “Nakshatra” brand.

• In 2004, Gili was selected as the “Super Brand” by the Indian Consumer Super brand Council.

• In 2004, the company began selling branded gold Jewellery to different consumer segments (in association with World Gold Council) under the brand names “Collection G, Gold expressions, and vivaha Gold. In 2001, Gitanjali launched the buy – back scheme for diamonds.

• Aggressive Marketing Campaigns by way of Advertising.

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Distribution

• Independent sales and distribution network for diamonds and Jewellery products.

• Promoter group companies outside India played major role in developing strong relationships with customers in the international markets.

• Wholesalers acted as procurement agents for Jewellery retailers in the international market .

• Back home gitanjali has a strong sales and distribution channel by way of exclusive distributors, direct sales to large departmental stores and reputed Jewellery lines, and direct sales to and customers through retail operations.

• 12 retail outlets were established as franchisees.• Gili brand was sold though an independent distribution

network through regional offices and operations were handed through retail outlets in host stores (Shopper’s stop)

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Customer Relationship Management

• Gitanjali identified specific customer requirements and delivered on such requirements effectively within the shortest time frame.

• CRM enable Gitanjali to reduce payment risks.

• International customers visited diamond manufacturing facilities in India and placed orders of certain specifications.

• Participation in trade shows & fairs.

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Acquisitions & Alliances

• The Company had strategic alliance with World Gold Council. Collection “g”

• Gitanjali was a DTC sight holder since 1967.• In 2001, the firm entered into a 50% joint venture in the form of

D’Damas Jewellery Private Ltd with Damas Jewellery LLC (Dubai).

• The company acquired 99.04% equity interest in Fantasy diamond cuts private ltd in 2005.

• Hyderabad gems SEZ was incorporated in 2005.• Gitanjali gems has 2 associate companies Gili India (60% equity

interest) and Brightest Circle (33.34%).• In 2005, Gemplus, Prism, Giantti were amalgamated into the

company. • Gitanjali has five subsadries namely, mehul impex, hyderabad

gems. Gitanjali expots, fantasy diamonds, CRIA Jewellery.

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Initiatives taken by Gitanjali Gems Ltd.

• Increased market share in the diamonds and Jewellery business in India. (70% Increased)

• Maintained focus on international markets. (70%)

• Developed branded Jewellery lines.

• Expanded retail operations.

• Expanded product offerings and maintained high quality customer service.

• Increased product capacity.

• Pursued strategic acquisitions and alliances

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Gitanjali Gems Ltd. – A Road Ahead• The Indian gems and Jewellery sector is expected to cross US$ 26

billion by 2012, driven by availability of huge base of skilled labor and improving lifestyle, according to a research report

• Due to various government efforts and incentives, coupled with private sector initiatives, the Indian gems and Jewellery sector is expected to grow at a Compound Annual Growth Rate of around 14 percent from 2009 to 2012.

• The consumption of diamond Jewellery in India is expected to touch US$ 6.41 billion in 2012.

• State-run National Mining Development Corp (NMDC) plans to produce close to 100,000 carats of diamonds from the Panna diamond mines in Madhya Pradesh by 2010-11.

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Learning from the Case

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Yesterday TodayUnbranded Branded

Silver & Gold Jewellery Gold, Diamond & Gems Jewellery

Investment Investment + Fashion

Traditional design Fashionable & Innovative Design

Marriage & festivals - peak season Gifts & Personal use

Jewellery sold on commodity basis

with labor charges

Jewellery being sold on a per piece

basis

Indian Retail - Jewellery

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• Forward Integration

• Unique Production houses for Retail & Wholesale.

• Low labor has helped GITANJALI GEM LTD. to sustain in the market (Capital Intensive)

• Recruitment of technologist have helped them in attaining the point of difference.

• Consumption of jewellery is affected by Culture. (Diwali, Akshya Tritya, Christmas)

Some Advantages

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Diamond Polishing

Direct From Mines

Rough Distribution

Diamond Distribution

Jewellery Manufacturing

Jewellery Whole Selling Jewellery Branding

Jewellery Retailing

Shopping Experience

Value Chain

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Strategies – Gitanjali Gems Ltd.

Operational Excellence

• Various distribution channels.

• Securing suitable locations.

• Ability to hire, train & retain qualified personnel.

• Regular Staff Training Programs.

• Various Leadership & Performance enhancement

programs.

• 26 Distributors, 620 Outlets.

• 17 Franchise outlets.

• Inventory Management System

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Strategies – Gitanjali Gems Ltd.

Grand Strategies

Market Development

ProductDevelopment

Market Development

New Retail Outlets

Shop in Shop Concept

Expansion Plans

Participation in Fashion Shows

Various new products for different customer profile.

International Retailing

Product Development

Product poliferation

Replacement of unsold stock on quarterly basis

Continuous process of product development