Gitanjali eyes retail buyouts in the US

Following the acquisitions of  two jewellery chains in the US, Samuel Jewels in December 2006 and Rogers in November 2007, Gitanjali Gems  is eyeing a few more buyouts in the world's largest jewellery market. The slowdown in the US economy and consequently the jewellery market, could throw up opportunities for buyouts, says Chairman Mehul Choksi.

For Gitanjali, which today processes and manufactures diamond jewellery, its newer initiatives to tap the retail and infrastructure development spaces, might well be its key revenue drivers in the next few years. The Rs 3,471 crore company, has already forayed into these segments both in the domestic as well as the international market. Within the jewellery  space, the firm  is focusing on the high- margin jewellery manufacturing segment, rather than the labour intensive diamond processing operations.

Jewellery companies are unable to achieve profitability through manufacturing alone and have to go downstream for better realisations.

Says Choksi, " The company operates across five verticals from jewellery manufacturing to retail. Going forward jewellery will remain the core business but we will explore expansion opportunities in related products as well."

Early last year, Gitanjali ventured into luxury retail, through a wholly -owned subsidiary Gitanjali Lifestyle, to introduce international brands in India. Since then the company has tied up with Australian salon chain Just Cuts to open 250 outlets in next four years.

It has also inked a joint venture with Italian jewellery and watch major Morellato and Sector Group to distribute  their brands in the country. Gitanjali already has a portfolio of 12 jewellery brands across various price segments, being retailed through nearly 1,000 stores. Internationally, it has entered the American jewellery retail market with a target to operate about 400 jewellery stores.

Industry sources estimate that  by 2009-10, retail is likely to become a Rs 300 crore (Rs 3 billion) business for the company, while the American operations are pegged to reach $1 billion in next five years. The firm is also scouting for a logistics partner to enter China, which accounts for 3-4 per cent of the global jewellery market. According to analysts, Gitanjali will command better valuations than its industry peers because of strong brands and better margins due to its presence across value chain and evolution as focused retail player. "About 60-70 per cent of the wholesale business will cater to the group's captive requirements," observes
Choksi.

Gitanjali Infratech, a wholly owned subsidiary, established to develop luxury malls and infrastructure for the proposed SEZs  to be set up in Hyderabad  and Panvel, will enable the company to expand margins through rental and lease income. According to sources, the SEZs are expected to generate income from 2009 onwards , with a potential to become a $500 million business.

The company also plans to develop SEZs at Nanded, Nagpur and Aurangabad.

Gitanjali intends to make India a manufacturing hub for its international operations. For instance, the Italian joint venture has enabled Gitanjali to manufacture and assemble watches at its upcoming special economic zones. The jewellery maker will gradually shift its Mumbai-based manufacturing facilities to the upcoming SEZ at Hyderabad.

The relocation of the manufacturing base, measuring 5 lakh sq ft, is expected to  unlock real estate worth $80 -100 million, according to the management. Gitanjali intends to keep a portion of this property for itself, while the rest of the land is expected to be given on rent or leased.

A report by Morgan Stanley released in November, says the markets have underestimated the company's real estate value. The report notes that real estate will contribute close to 50 per cent of the company's operating profits in FY 2010.