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2013-2014 Guide to the Jewellery Market in India
 

2013-2014 Guide to the Jewellery Market in India

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India is currently number two in gold jewellery consumption by volume, number four in platinum jewellery consumption by volume and number one in diamond jewellery consumption by volume. The country ...

India is currently number two in gold jewellery consumption by volume, number four in platinum jewellery consumption by volume and number one in diamond jewellery consumption by volume. The country will remain the most important market for precious jewellery in terms of potential for many years to come. For one, demand for precious jewellery is already formidable because of strong cultural traditions and yet more than 90% of adults in India possess wealth valued below US$10,000.

However, that is a story for the future. In the present, consumption of precious jewellery in India gained momentum in the aftermath of the Global Financial Crisis as Indians rode the wave of gold price inflation, encouraged by stronger economic growth and lower inflation. Consumption of precious jewellery subsequently lost momentum when the situation reversed. Economic
growth is now weaker and Indian consumers are currently battling higher inflation.

Jewellery sales in India will experience slower growth in the period 2013-2016 than in the period 2009-2012. The culprits will be ongoing weakness in consumer spending which has been hit by rising inflation, lower real wage growth and a poorer macro-economic environment.


Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the back of continued modernisation of sales channels in India and the expected rise in the number of middle class consumers.


In the following pages, you will discover our views on the consumption of precious jewellery in India as well as discover our ideas on the likely direction of such consumption in the future. You will also get to find out why we selected India as the most promising market for precious jewellery for many years to come.

For our purposes, we define precious jewellery as jewellery pieces made of gold, platinum or silver, in their pure form or combined with other lesser metals like copper. Such jewellery pieces can be in plain form or gemset precious jewellery. In the gemset category, this report provides extended study of polished diamonds consumption in India.



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    2013-2014 Guide to the Jewellery Market in India 2013-2014 Guide to the Jewellery Market in India Document Transcript

    • 2013-2014 Guide to the Jewellery Market in India December 2013 Equity Communications Diamond Market Specialists
    • Methodology We use secondary data for our research. We mine raw data going back at least forty years in our analysis and this data and information is extremely useful in our work. These are some of the sources we mine:  International statistics data provided by the OECD, IMF, various departments of the United Nations  International statistics data provided by USA government departments such as the Bureau of Economic Analysis and Federal Reserve Banks  International statistics data provided by EuroStat  National statistics offices in China, Hong Kong, India, USA, Japan, Switzerland, Zimbabwe, Australia, UK  Proprietary research by leading global financial institutions such as Goldman Sachs, Amundi, Nomura, Credit Suisse and JP Morgan  Proprietary research by leading regional financial institutions and brokerage firms in China, Hong Kong, Japan and India  Industry promotion bodies such as the World Gold Council and the Silver Institute  Annual reports and investor presentations by a core group of 150 public companies countries from India, Hong Kong, China, Europe, USA, Australia, Canada, South Africa, South East Asia and Zimbabwe. These companies operate in various industries including the diamond industry, luxury goods industry, precious jewellery retailing industry and general retailing  Earnings call transcripts which are extremely useful  Industry trade publications  International and regional financial news organisations Nevertheless, analysis of data and trends is an art. For the most part, our researchers at Equity Communications are our greatest asset. In the following pages, you will discover our views on the consumption of precious jewellery in India as well as discover our ideas on the likely direction of such consumption in the future. You will also get to find out why we selected India as the most promising market for precious jewellery for many years to come. For our purposes, we define precious jewellery as jewellery pieces made of gold, platinum or silver, in their pure form or combined with other lesser metals like copper. Such jewellery pieces can be in plain form or gemset precious jewellery. In the gemset category, this report provides extended study of polished diamonds consumption in India. www.diamondshades.com -1-
    • Acknowledgements and Disclaimers Acknowledgements 2013-2014 Guide to the Jewellery Market in India is based on research by the Diamond Industry Research Team at Equity Communications: Tinashe Takafuma, Gerald Manyengavana, Musafiri Chisaka and Fred Divine. 2013-2014 Guide to the Jewellery Market in India is based on information available up to the end of October 2013 for the most part. Please Note The views expressed herein are solely those of Equity Communications as of the date of this report and are subject to change without notice. Data Tables, Survey Results and Financials provided in this report are not intended, nor implied, to be a substitute for the professional advice you would receive from a qualified accountant, attorney or financial advisor. Always seek the advice of an accountant, attorney or financial advisor with any questions you may have regarding the decisions you undertake as a result of reviewing the information contained herein. Nothing in this report should be construed as either investment advice or legal opinion. General Disclaimer This document is produced and circulated for general informational and educational purposes only. It is provided by Equity Communications. Equity Communications research utilizes data and information from public, private and internal sources. While we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, or suitability of this publication. The information and analysis contained in this publication has been compiled or arrived at from sources believed to be reliable but Equity Communications does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Furthermore, the material contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient or organisation. It is not to be construed as a solicitation or an offer to buy or sell any commodities, securities or related financial instruments. For more information, please visit http://www.diamondshades.com/ © Copyright 2013, Equity Communications Private Limited, ALL RIGHTS RESERVED. For more information please contact: Tinashe Takafuma Head of Research tinashe.takafuma@diamondshades.com www.diamondshades.com -2-
    • Table of Contents 2013-2014 Guide to the Jewellery Market in India by Tinashe Takafuma Summary page 5 Local Economy page 7 Demographics page 9 Market Profile page 12 Appendix page 30 Equity Communications Diamond Market Specialists www.diamondshades.com -3-
    • Page Reference India Nominal GDP 1980-2018 page 7 India Real GDP Growth rate 1980-2018 page 7 India GDP per Capita 1980-2018 page 7 India Real GDP and CPI Inflation 2000-2018 page 7 India's Total Wealth 2000-2013 page 8 India's Wealth Per Adult 2000-2013 page 8 India's Adult Wealth Pattern 2010-2013 page 8 Population Projections for India 2000-2030 page 9 Urbanization Prospects for India 1990-2030 page 9 Adult Population for India 2000-2013 page 9 Crude Birth Rate for India 1980-2030 page 10 Population Below 15 years (From 25 years ago to present) page 10 Total Fertility Rate for India 1980-2030 page 10 Age at First Marriage for Females page 10 Employment Growth for India 1990-2013 page 11 Labour Productivity Growth for India 1990-2013 page 11 Private Consumption Growth for India 2006-2013 page 11 Indian Rupee Cross-rates 2003-2013 page 11 Retail Sales of Precious Jewellery 2002-2012 page 12 Gold and Diamond Demand by Region page 12 Retail Sales of Gold Jewellery in India 2002-2012 page 14 Gold Jewellery Demand Trends in India 2003-2013 page 14 Gold Price in India Rupees and US$ 1993-2013 page 15 Retail Sales of Diamond Jewellery in India 2002-2012 page 16 Diamond Jewellery Demand by Region page 17 Diamond Jewellery Market Share of Sales in India page 17 Consumption Breakdown for Diamond Jewellery in India page 17 Market Share: Organized Retail versus Informal 2006-2016 page 18 Quarterly Gold Demand for Jewellery in India 2010-2013 page 20 Quarterly Retail Sales of Gold Jewellery in India 2012-2013 page 23 2013 Retail Sales of Precious Jewellery in India (Rupees) page 23 2013 Retail Sales of Precious Jewellery in India (US$) page 23 Titan Industries Jewellery Division page 30 Tara Jewels page 32 Tribhovandas Bhimji Zaveri (TBZ) page 33 Revenue Growth (selected retailers) page 34 www.diamondshades.com -4-
    • India: Summary of Jewellery Market in 2013-2014 India is currently number two in gold jewellery consumption by volume, number four in platinum jewellery consumption by volume and number one in diamond jewellery consumption by volume. The country will remain the most important market for precious jewellery in terms of potential for many years to come. For one, demand for precious jewellery is already formidable because of strong cultural traditions and yet more than 90% of adults in India possess wealth valued below US$10,000. With further economic growth, a large number of Indians will move to higher wealth bands and this will lead to an acceleration of precious jewellery consumption. However, that is a story for the future. In the present, consumption of precious jewellery in India gained momentum in the aftermath of the Global Financial Crisis as Indians rode the wave of gold price inflation, encouraged by stronger economic growth and lower inflation. Consumption of precious jewellery subsequently lost momentum when the situation reversed. Economic growth is now weaker and Indian consumers are currently battling higher inflation. Retail sales of gold jewellery are forecast to decrease by 4% to 1,763 billion rupees (US$31.732 billion) in calendar year 2013. Demand for gold jewellery was strongest in the first half of the year, corresponding with the initial burst of lower gold prices. Volume demand for gold jewellery is forecast to increase by 4.3% to 575.2 tonnes in 2013. Consumer demand for gold was robust from the last quarter of 2012 culminating in even stronger buying in the second quarter of 2013, following massive declines in the price of gold. When the price of gold first plunged to levels last seen in 2010, jewellery consumers quickly saw this as a buying opportunity and rushed to make purchases. Many reasoned that the dip in gold prices was an anomaly and expected gold prices to soon return to their long-term upward trajectory. However, this has not occurred. As a result, volume demand has been quite weak in the second half of 2012. Retail sales of diamond jewellery are forecast to increase by 11% to 478 billion rupees (US$8.609 billion) in calendar year 2013. Demand for diamond jewellery grew at the slowest pace in recent years... ...continued on next page www.diamondshades.com -5-
    • India: Summary continued... ...after consumer budgets were shifted from other jewellery products to augment gold jewellery purchases. Retail sales of precious jewellery are forecast to decrease by 1.2% to 2,241 billion rupees (US$40.341 billion) in 2013 mainly because of higher purchases of gold jewellery at lower gold prices. In the short-term, demand for jewellery products has been stifled by higher inflation, less positive macroeconomic environment, and moves by the Indian government to force a reduction in gold and polished diamonds imports. Current conditions in India have greater negative impact on diamond jewellery sales than on gold jewellery sales since consumer demand for diamonds is more discretionary. With persistent inflation, prices for goods in India are higher and this makes jewellery less competitive. Outlook Jewellery sales in India will experience slower growth in the period 2013-2016 than in the period 20092012. The culprits will be ongoing weakness in consumer spending which has been hit by rising inflation, lower real wage growth and a poorer macro-economic environment. Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the back of continued modernisation of sales channels in India and the expected gradual rise in the number of middle class consumers. www.diamondshades.com -6-
    • India: GDP Snapshot India has reversed gains of the last few years Unlikely that India will achieve average growth of +6% in next five years, as per IMF forecast Gigantic population means middle-class is increasing in impactful numbers Deteriorating inflation fundamentals Source: IMF World Economic Outlook Database, Equity Communications Data. Data as at October 2013 www.diamondshades.com -7-
    • India: Wealth Snapshot Total wealth position has deteriorated Wealth per adult has lost momentum Currently leads world’s poor, increasing in number Source: James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Data Book 2013, Equity Communications Research www.diamondshades.com -8-
    • India: Demographic Snapshot Lower population growth positive for improvement in standard of living Positive with improving urban infrastructure; negative with slums Massive opportunity with sustainable longterm economic growth Source: Top – US Census Bureau, International Database, July 2012, Middle - United Nations, Department of Economic and Social Affairs, Population Division (2012). World Urbanization Prospects: The 2011 Revision, Bottom James Davies, Rodrigo Lluberas and Anthony Shorrocks, Credit Suisse Global Wealth Data Book 2013. Equity Communications Research www.diamondshades.com -9-
    • India: Demographic Snapshot continued... Population regeneration is improving to a level that is conducive for faster economic growth. Age at first marriage is becoming more attractive and this is positive for consumption of precious jewellery for engagements and weddings. Source: United Nations, Department of Economic and Social Affairs, Population Division (2013). World Population Prospects: The 2012 Revision. Equity Communications www.diamondshades.com - 10 -
    • India: Employment, Consumption, Rupee cross-rates Source: Top Two - The Conference Board Total Economy Database, January 2013, Consumption Data - OECD (2010), "Main Economic Indicators - complete database" accessed Oct 2013. Bottom - Equity Communications Data www.diamondshades.com - 11 -
    • India: Jewellery Consumption Trends Source: Top – Equity Communications Data, Converted from local currency using 1 Rupee = 0.018 US dollars, Bottom – Care Report 2011 www.diamondshades.com - 12 -
    • India: Jewellery Consumption Trends continued...  Demand for gold jewellery is very strong because of cultural preferences, including adornment+investment factor - 81 to 86 percent of jewellery retail sales are gold jewellery products (22-24 karat pure gold preferred because easier to liquidate). There is a culture of buying gold during auspicious occasion of Diwali, Akshaya Tritiya, Dussehra and also during weddings. In rural India, farmers typically buy gold jewellery after every successful harvesting season as it is the best form of investment for them. Gold is also a natural hedge against inflation.  Jewellery fashion changes seasonally leading to higher product obsolescence - slow moving jewellery at the tail end of seasons, therefore significant recycling may reduce new sales - possibly up to ten percent.  Sales of higher priced jewellery are supported by the introduction of schemes that enable consumers to make advance payments in monthly instalments. Consumers purchase often discounted jewellery at the completion of the instalment period.  Increasing number of consumers (20-30%) augmenting gold purchases with diamond jewellery purchases. Diamond jewellery has a stronger adornment factor - diamond jewellery set in lower 18 karat gold (diamond necklaces very popular). Platinum-setting gaining share of diamond jewellery sales - now at 20-25% of diamond jewellery sales.  Jewellery brands recent phenomenon but very popular with the youths in metropolitan cities - a globally connected youth market is revolutionising jewellery consumption in India. Demand for fashion jewellery on the rise. www.diamondshades.com - 13 -
    • India: Retail Sales of Gold Jewellery Source: Top – Equity Communications Data, Converted from local currency using 1 Rupee = 0.018 US dollars, Bottom – World Gold Council, Gold Demand Trends, Equity Communications Database www.diamondshades.com - 14 -
    • India: Retail Sales of Gold Jewellery continued... Retail sales of gold jewellery in India have tracked increases in the price of gold because of the strong adornment+investment demand factor. Volumes change from year to year depending on consumer economic sentiment but significant gold price inflation in recent years had put massive pressure on consumer demand. As a result, gold grammages for jewellery pieces were trending downwards up until the significant plunge in gold prices in April 2013. Source: Chart - World Gold Council, Gold Demand Trends, Equity Communications Database www.diamondshades.com - 15 -
    • India: Retail Sales of Diamond Jewellery Purchases of diamond jewellery are comparatively complex because they require at least passing knowledge of the 4Cs of diamond jewellery - colour, clarity, cut and carat. Without doubt, this has been a significant barrier to sales growth in India and other nascent diamond markets since diamond jewellery is traditionally expensive. Nevertheless, establishment of organized retail chains in India has given Indian jewellers the platform to educate consumers about diamond jewellery. Furthermore, the introduction of certified diamonds has increased trust and made diamond valuations more transparent. Indian diamond industry players are taking diamonds to the mainstream, allowing people of most economic levels to purchase diamond jewellery. Jewellery manufacturers are innovating and producing fashionable diamond jewellery which is cheap by traditional world standards but targeted at the middle class in India where demand for such products - diamond accented jewellery - is strong and growing in leaps and bounds. Source: Chart – Equity Communications Data, Converted from local currency using 1 Rupee = 0.018 US dollars www.diamondshades.com - 16 -
    • India: Diamond Jewellery Consumption pattern There is a shift in consumer preference to low-priced everyday diamond jewellery which is about 50 percent cheaper than event-driven diamond jewellery and also cheaper than pure gold jewellery. Everyday jewellery cannot be expensive jewellery. Trendy lightweight designs, guaranteed buy-back schemes, transparent pricing, and availability of quality certification have all boosted sales. The quality of cheap diamond jewellery produced has also improved dramatically in the last three years and we believe it will soon debut on the world stage. India has a 32 percent urban population. As a result, diamond jewellery sales are very minimal in rural areas where gold jewellery is extremely dominant. Diamond jewellery sales are stronger in the larger and wealthier cities and decline rapidly as we move towards rural India. Source: Top – Gitanjali investor presentation, Bottom Two – Equity Communications Research www.diamondshades.com - 17 -
    • India: Jewellery Retailing Landscape Highly Segmented India is modernizing its retail landscape. Traditionally, Indians go to the preferred and trusted neighbourhood jeweller for their jewellery requirements. However, this is gradually changing with the emergence of numerous regional retail chains and a sprinkling of countrywide retail chains. Industry Profile  India continues to modernize and urbanize its retail model  New regulations, duties and taxes that favour formal business operations - materials sourcing and business finance  Input costs increasing more than 200% in five years  Competition for limited quality retail space  Consumer preference for hallmarked and certified jewellery is fast becoming standard - retail brands  Source: Chart – Equity Communications research and projections. As at November 2013 www.diamondshades.com - 18 -
    • India: Jewellery Retailing Landscape continued... The dominant profile of business in India is low margins and high volumes. Margins continue to be under severe pressure owing to a steep rise in commodity prices and steep competition. For this reason, the jewellery in India will have to be more aggressive in its push for large-scale adoption of branded jewellery as this will create space for more sustainable margins in the sector. Fortunately, fashion conscious youths have shown strong appetite for branded jewellery and this has provided a much needed pull-factor in the demand for branded jewellery and establishment of jewellery retail brands. Nevertheless, the Indian market remains very difficult for foreigners to penetrate because...  Weddings and Cultural Festivals are key consumption drivers - demand is very traditional with product preferences varying from region to region and season to season  Retail landscape underdeveloped - extremely limited quality real estate available to foreigners for the establishment of profitable store networks  Unusual sales methods - trade-ins, discounts and buy-back schemes popular because of adornment+investment factor and seasonal consumption of jewellery  Restrictive tariff arrangements on imported jewellery and luxury - margins for jewellery are already comparatively lower www.diamondshades.com - 19 -
    • India: 2013 Interim Review of Jewellery Market Gold Stole headlines in 2013: 1. The gold price plunged and released pent up demand for gold jewellery 2. The Reserve Bank of India announced new restrictions on gold imports into India in order to improve the country’s national accounts position 1. The gold price plunged and released pent up demand for gold jewellery When the price of gold first plunged to levels last seen in 2010, consumers of gold jewellery in key markets quickly saw this as a buying opportunity and rushed to make purchases. Many reasoned that the dip in gold prices was an anomaly and therefore expected gold prices to soon return to their long-term upward trajectory. However, this has not occurred and probably will not occur in the foreseeable future. As a result, we expect investment demand for gold jewellery to remain muted going forward. Source: Chart - World Gold Council, Gold Demand Trends, Equity Communications Data. Data as at November 2013. www.diamondshades.com - 20 -
    • India: 2013 Interim Review continued... 2. The Reserve Bank of India announced new restrictions on gold imports into India in order to improve the country’s national accounts position  At least 20% of all gold imports into India must be for re-export  20% of all gold imports to be retained in customs bonded warehouses  Fresh imports of gold allowed only after the exports have taken place to the extent of at least 75% of gold remaining in the customs bonded warehouse.  Customs duty on gold imports hiked from 8% to 10% and on imported gold jewellery from 10% to 15%  Gold imports in any form for domestic use shall be made available only to entities engaged in jewellery business/bullion dealers supplying gold to jewellers  Gold for domestic use shall be made available only after full upfront cash payment  Ban on import of gold coins and bars for investment purposes Implications for Jewellery Industry  Retailers with significant export business to come out ahead since steady availability of gold is ensured, including better financing terms  Informal businesses to be further marginalized from official raw materials procurement channels  Export Jewellery businesses have become crucial again - management attention to likely shift from domestic expansions to foreign expansions (More exports required to grow domestic business)  New procurement rules that outlaw gold loans to increase pressure on finance costs, cash-flow management to require more scrutiny  Pressure on retailers to push more diamond jewellery which has better margins. Light weight gold and diamond jewellery pieces also an option Essentially, the government of India is trying to disrupt India's famous love-affair with gold because of its negative impact on the country's current account balance. Gold contributed nearly 30% of India's trade deficit during 2009-10 to 2011-12. Indian consumers put money into gold because they trust it much more than they do banking products offered by the country's financial institutions. Furthermore, as much as 42.4% of India's GDP is believed to be in the underground economy, up from 27.4% in the pre-reforms period. Gold provides liquidity for the untaxed underground economy in India. www.diamondshades.com - 21 -
    • India: 2013 Interim Review continued... Put simply, the new rules state that gold imports for domestic purposes cannot be increased without a similar increase in gold imports for re-export purposes. As such, there are concerns that current gold jewellery exports are not enough to cover actual current domestic demand for gold jewellery. Nevertheless, a cursory analysis of gold import and export data provided by the Gems and Jewellery Promotion Council of India suggests that gold exports are adequate to cover domestic demand for gold jewellery. Therefore, we believe the new policy environment will ultimately lead to further realignment of the jewellery industry in India to the benefit of well positioned jewellery businesses - those with significant export operations plus appealing domestic jewellery retail brands. www.diamondshades.com - 22 -
    • India: 2013 Retail Sales of Jewellery Source: Equity Communications Data. Data as at November 2013. Converted from local currency using 1 Rupee = 0.018 US dollars. Gold Volume Data- World Gold Council, Gold Demand Trends, Equity Communications Data www.diamondshades.com - 23 -
    • India: 2013 Retail Sales of Jewellery continued... Summary Retail sales of gold jewellery are forecast to decrease by 4% to 1,763 billion rupees (US$31.732 billion) in calendar year 2013. Demand for gold jewellery was strongest in the first half of the year, corresponding with the initial burst of lower gold prices. Volume demand for gold jewellery is forecast to increase by 4.3% to 575.2 tonnes in 2013. Consumer demand for gold was robust from the last quarter of 2012 culminating in even stronger buying in the second quarter of 2013, following massive declines in the price of gold. When the price of gold first plunged to levels last seen in 2010, jewellery consumers quickly saw this as a buying opportunity and rushed to make purchases. Many reasoned that the dip in gold prices was an anomaly and expected gold prices to soon return to their long-term upward trajectory. However, this has not occurred. As a result, volume demand has been quite weak in the second half of 2012. Retail sales of diamond jewellery are forecast to increase by 11% to 478 billion rupees (US$8.609 billion) in calendar year 2013. Demand for diamond jewellery grew at the slowest pace in recent years after consumer budgets were shifted from other jewellery products to augment gold jewellery purchases. Retail sales of precious jewellery are forecast to decrease by 1.2% to 2,241 billion rupees (US$40.341 billion) in 2013 mainly because of higher purchases of gold jewellery at lower gold prices. www.diamondshades.com - 24 -
    • India: 2013 Retail Sales of Jewellery continued... Jewellery products are discretionary goods whose demand fundamentals are at the mercy of consumer economic sentiment. If consumers believe the economy is healthy, they are more likely to absorb rising prices of discretionary goods. When economic sentiment is weak, consumers purchase fewer discretionary goods. In the short-term, demand for jewellery products has been stifled by higher inflation, less positive macroeconomic environment, and moves by the Indian government to force a reduction in gold and polished diamonds imports. Current conditions in India have greater negative impact on diamond jewellery sales than on gold jewellery sales since consumer demand for diamonds is more discretionary. With persistent inflation, prices for goods in India are higher and this makes jewellery less competitive. For 2013 at least, gold jewellery sales by volume are expected to be stronger than for 2012 despite a poorer third quarter performance compared to 2012. Earlier this year, consumers in India took advantage of the unprecedented slump in gold prices to massively increase gold jewellery purchases, especially for cultural gifting purposes. Furthermore, since jewellery purchases occur on budgets, budgets were shifted from other jewellery products to augment gold jewellery purchases. For the last quarter of 2013, consumers will likely shift to lighter gold jewellery products in light of the prevailing economic conditions that have kept gold prices higher in India. On the other hand, farmers in India appear to have had a good harvest and this always boosts gold jewellery sales in addition to strong seasonal demand for weddings and festivals. However, gold import curbs by the government as well as strong out of season purchases earlier this year could also result in lack-lustre sales for the season. www.diamondshades.com - 25 -
    • India: Outlook for Jewellery Market Jewellery Product Preferences Gold Jewellery versus Platinum Jewellery Vs Diamond Jewellery Demand for gold jewellery is steeped in tradition that goes back more than a thousand years....that is not about to change. Therefore, gold jewellery sales will still experience volume growth subject to a better macro-economic environment and stronger disposable incomes. On the whole, Indian society is modernizing and becoming less traditional. Consumers have shown a willingness to amplify traditional demand for gold jewellery with purchases of jewellery made from other precious materials like diamonds and platinum. At steady gold prices, demand for such products will grow faster than demand for gold jewellery products simply because it is still in the nascent stage. Behind this revolution in consumption patterns is the large population of young people in India using internet technology to stay in tune with the world. As a result, the Indian young adult population in the major cities is fast become sophisticated and increasingly becoming less satisfied with plain gold jewellery. Younger jewellery consumers in India care more about design, style and seasonal trends. For this reason, branding, marketing and product placement have become important. Diamond jewellery is actually not a great financial investment as more consumers in India are starting to find out. We believe this will likely impact the pace of diamond jewellery adoption by Indian consumers going forward. For the most part, diamonds of the cheaper variety are becoming more prevalent within day-to-day jewellery pieces as they offer flexibility in terms of style and colour, often adding a more contemporary feel to a look or outfit. We fully expect movement of diamond jewellery consumption away from the adornment+investment category and towards the adornment only category. Retailers have been trying to grow share of diamond jewellery to at least 40% of sales as this would greatly improve profit margins. However, the goal has so far proved elusive because gold jewellery sales have also been growing at a remarkable pace, fuelled by significant gold price inflation. Let us see what happens with steadier and lower gold prices. www.diamondshades.com - 26 -
    • India: Outlook for Jewellery Market continued... 2013 -2016 Please refer to charts in first section for Macroeconomic and Demographic Scorecard. Jewellery sales in India will experience slower growth in the period 2013-2016 than in the period 20092012. The culprits will be ongoing weakness in consumer spending which has been hit by rising inflation, lower real wage growth and a poorer macro-economic environment. At Equity Communications, we still feel India is a policy mess and will remain so for the foreseeable future. Our thinking is that India will stumble along for the remainder of this decade because of glaring structural deficiencies such as troublesome inflation and the current account deficit which remains vulnerable to poor policy decisions and business-culture problems. We believe Indian culture is greatly responsible for the country growing below its potential GDP. Nevertheless, the 5 to 7% annual GDP growth rate guarantees that India will become the next China in the 2020s because of its gigantic population. ***** Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the back of continued modernisation of sales channels in India and the expected rise in the number of middle class consumers. Indian jewellers are raising money on the local stock exchange and using proceeds for raw material procurement and store expansions, including large format stores across the country. Recycling of gold jewellery is also expected to increase in the coming years because jewellery designs are becoming stale faster. Slow moving jewellery at the tail end of seasons is recreated into new designs. ***** The product mix for jewellery retailers is a key determinant of profitability. Gold margins are standardized because of adornment+investment factor. However, quest for greater margins is driving diversification from gold jewellery products. Demand for gold jewellery remains very strong because of cultural traditions. Gold jewellery sales - for weddings, in particular - will continue to generate volume growth for jewellery retailers. Platinum and diamond jewellery sales will generate margin growth. The shift to more profitable diamond jewellery has been smooth because India is the world's dominant processor of rough diamonds, with a monopoly position in the processing of small size and small value diamonds. The local diamond industry already has massive stocks of polished diamonds therefore it has been easier www.diamondshades.com to stimulate domestic demand for diamond jewellery. - 27 -
    • India: Outlook for Jewellery Market continued... ***** Industrialization and improvements in the standard of living reduce long-term consumption of precious jewellery Industrialization and improvements in the standard of living reduce long-term consumption of precious jewellery since they also lower the potency of love traditions (marriage) that typically drive jewellery consumption. With Industrialization and improved standards of living:  there is reduction in communal economic activity such as subsistence agriculture  there is urbanization and standardization of dwellings  there are increases in wages  there is increase in the status and education of women  there is introduction of superior methods of birth-control that have revolutionized the sexual habits of human-beings Industrialization and improvements in the standards of living causes a drastic shift in values from collectivism/communism to individuality. Unlike collectivism which emphasizes doing things for family and community, individuality gives priority to personal freedom, self-determination and self-realization. To those operating in the Indian jewellery industry, you will be pleased to know that India is still a very long way from being fully industrialized. From the beginning of time until well into the 20th century, precious jewellery was extremely rare and costly to access in most regions of the world, making it extremely valuable as a status symbol. For much of that time, only the very wealthy could afford the luxury of precious jewellery since gold and silver were also used as circulating currency. It is no wonder then that consumption of precious jewellery receives a boost as societies become richer. When more and more people around you are becoming wealthier, it is very important to prove that you are not being left behind. However, consumption of precious jewellery also loses much of its emotional appeal as wealth becomes more spread out. When everyone around you can afford a product, it becomes redundant to prove that you have it too. www.diamondshades.com - 28 -
    • India: Outlook for Jewellery Market continued... To those operating in the jewellery industry, you will be pleased to know that this is the stage at which we find India today. Despite the Indian's government's efforts to dent growth of the retail jewellery sector in India, demand for jewellery is naturally structured to grow significantly.  Cultural tradition of precious jewellery consumption  Gigantic population  Gradually growing economy and improving standards of living  Leading global centre for precious jewellery manufacturing  Population regeneration supports sustainable consumption www.diamondshades.com - 29 -
    • Appendix: Selected Indian Jewellery Company Data Titan Industries Jewellery Division  Largest jewellery retailer in India  Three major brands – Tanishq, GoldPlus and Zoya  Sub-brand - Mia, for the working woman; fq for the teens Source: Company publications, Equity Communications research www.diamondshades.com - 30 -
    • Appendix: Selected Indian Company Data continued... Source: Company publications, Equity Communications research www.diamondshades.com - 31 -
    • Appendix: Selected Indian Company Data continued... Tara Jewels Integrated player in the Indian jewellery industry, launched and expanding domestic retail network Target segment of market aspirational luxury shoppers in India Average ticket size of Rs 50,000 Source: Company publications, Equity Communications research www.diamondshades.com - 32 -
    • Appendix: Selected Indian Company Data continued... Tribhovandas Bhimji Zaveri (TBZ)  Specialty retailer with focus on both wedding and fashion segment of the Indian jewellery market  27 stores - ~88,000 square feet - spread across 20 cities in 7 states.  Expansion plan to increase the number of stores to 57 and retail space to ~150,000 square feet by 2015 spread over 43 cities in 14 states Source: Company publications, Equity Communications research www.diamondshades.com - 33 -
    • Appendix: Selected Indian Company Data continued... Source: Company publications, Equity Communications research www.diamondshades.com - 34 -
    • Appendix: Selected Indian Company Data continued... Source: Company publications, Equity Communications research www.diamondshades.com - 35 -
    • About Diamond Shades and Equity Communications Diamonds Shades Diamond Shades is a diamond market research service owned and operated by Equity Communications Private Limited. Diamond Shades provides breaking news alerts, analysis and commentary on the diamond industry value chain, precious jewellery markets and the general luxury economy. The service is operated from Australia, South Africa and Zimbabwe. Equity Communications Established in 2004, Equity Communications is an investor communications company and premium business information provider traditionally specializing on Zimbabwean industries that have global significance such as tobacco, platinum and diamonds. For queries about Equity Communications, its products and services please do not hesitate to contact us. Diamond Shades Equity Communications Private Limited Address: 43 Lewisam Avenue, Harare Telephone: +263-(0)772-811317 E-mail: info@diamondshades.com Diamond Shades 605/2 New Quay Promenade Docklands Vic 3008 Australia E-mail: international@diamondshades.com www.diamondshades.com - 36 -
    • Research Reports Free Reports with download links provided  Rio Tinto Diamonds 2013 - Published May 15, 2013  De Beers Group 2013 – Published July 24, 2013  Alrosa 2013 (excluding Catoca) – Published July 25, 2013  Dominion Diamond Corporation – Published July 25, 2013  Zimbabwe Diamond Mining – Published August 1, 2013  World Diamond Production 2013-2018 – Published August 3,2013 End of year publication schedule  2013-2014 Guide to the Jewellery Market in India  2013-2014 Guide to the Jewelry Market in USA  2013-2014 Guide to the Jewellery Market in China  2013-2014 Guide to Global Consumption of Precious Jewellery  2013-2014 Analysis of Key Materials Used in Precious Jewellery Production (FREE!)  Diamond Report 2013 www.diamondshades.com - 37 -
    • Equity Communications Diamond Market Specialists For more information, please visit http://www.diamondshades.com/ © Copyright 2013, Equity Communications Private Limited, ALL RIGHTS RESERVED. www.diamondshades.com - 38 -