The Glitter In Luxe Stocks
Jewellery companies are making a splash with brands in the luxury space, but only those companies that are managing their rollouts well make the investment cut
Photo Credit : Tribhuwan Sharma,
Luxury brands, globally, are a colossal business. In India, though, a handful makes the top 100. The world’s largest 100 brands generated $222 billion in sales (2014), a Deloitte report on Global Powers of Luxury Goods 2016 says. The list features for the first time three Indian brands: Titan (at 32), Gitanjali Gems (40) and PC Jewellers (44).
It’s no surprise that jewellery companies have some of the biggest luxe brands as India is a massive spender on one luxury, jewellery. Demand for gold (and jewellery) has been soaring, except last year, thanks to rising affluence and the lure of premium luxe brands.
As India ranks high on the list of millionaires (at last count a Credit Suisse report showed 185,000), little surprise that top diamond jewellers are shining on the Indian luxe list.
Besides rising affluence, middle-class aspiration is also driving demand for brand-named jewellery. While jewellery is largely influenced by emotion, brand-named jewellery builds trust and raises confidence. Titan is noted for its Tanishq brand; PC Jewellers has introduced its Flexia collection.
Also, top-end jewellers are opening larger stores and launching various store formats in different metropolises — from more lounge stores for the urban rich to large-format stores in tier-I and -II towns. These enhance brand value, and increase attractiveness and pulling power of the jewellery sector. Franchises and small-format stores are being launched for middle and lower classes. Says Sameep Kasbekar, research analyst, Emkay Global: “The presence of big stores provides a high level of trust. Besides, it helps hold higher inventory and designs that provide a variety of choices.”
On the arrival of e-commerce in jewellery, buyers are scouting online for newer designs. Online purchases, however, are largely of smaller amounts (Rs 20,000-30,000 and lower). Hence, to cater to this, PC Jewellers launched its online portal WearYourShine.com.
Buyers are increasingly searching online for big-ticket purchases. Seeing this trend, in July 2016 Titan acquired a 62 per cent stake in online jeweller Carat Lane for Rs 357.24 crore. Analysts, however, say that, for larger-ticket purchases in jewellery, people prefer big stores.
For their part, to increase footfalls, the larger Indian jewellers are reducing making charges to the levels of the unregulated sector. Making charges, about 15-20 per cent of premium jewellery, are now being reduced to 5-10 per cent.
Besides, a shift toward hallmarked jewellery is driving more customers to the regulated arena. Kasbekar points out that 22 per cent of the market is regulated (9 per cent in FY09), because of the shift from non-brand-named to brand-named jewellery.
Present laws push purchasers to regulated outlets, where purchases of over Rs 2 lakh require a PAN card. Last year, though, this was more of a hindrance to the sector’s growth.
Nevertheless, all signs point to brighter days. Wedding demand drives about 70 per cent of jewellery purchases; hence, more wedding days this season are expected to spur growth. The second half of this financial year has 16 per cent more wedding days than the first. Says Kasbekar: “Side by side, the improved perception in terms of pricing power and lower making charges in line with unregulated operators would help fuel demand.”
Jewellers have also re-introduced gold savings schemes under the new guidelines. Returns on these are now capped at 12 per cent and the government has raised the deposit limit to 35 per cent of a company’s net worth. This scheme is expected to boost Titan’s revenue by around Rs 14 billion.
On the other hand, prices of gold show signs of stability at around Rs 30,000, and are likely to attract more buyers. And, demand in mofussil areas is expected to be better since the monsoon — and crops — has been bounteous this year.
Little surprise then that share prices of jewellery firms are on a roll. Titan, for instance, surged 22 per cent last year to Rs 406.60. PC Jewellers surged 39.7 per cent, though TBZ declined 42 per cent. PC Jewellers, analysts say, is at a 50 per cent discount to Titan’s stock valuations.
In the coming months, though, how demand pans out remains to be seen. In a recent release Titan talked about the challenging demand scenario; nevertheless it is cautiously optimistic about growth opportunities.
This article was published in BW Businessworld issue dated 'Oct. 17, 2016' with cover story titled 'The Luxury Special 2016'
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