Finance crunch affects jewellers expansion plans

Chennai: Jewellers are moving slower on their store expansion plans as securing bank credit has become tougher for the industry post PNB scam. Even the exports were affected last fiscal. However, the industry thinks that banks will take a positive outlook for the industry in FY20.

“After the PNB fiasco and reports about round-tripping of diamonds and jewellery, securing bank finance, especially jewellery loans for inventory has become tougher for the industry and this has put pressure on the expansion of stores. The industry opened lesser stores in FY19 compared to FY18,’ said Sandeep Kulhalli, SVP, Retail & Marketing, jewelry division, Titan.

According to him, Titan remained unaffected as it follows franchise model for its cash and carry stores, where the franchisee gets a letter of comfort from the company to secure bank credit.  Titan also has been following ‘management-agent model’ in which the company provides the stock to the store owner who franchises the brand. The store capex is taken care of by the franchisee.

Joyalukkas opened just three to four stores last year and this was funded through internal accruals, said Joy Alukka, Chairman, Joyalukkas. Malabar Gold has been following a joint venture model for each store by partnering with a local investor and hence it does not have to rely on bank finance. ‘However, we have been hearing from the industry that availability of bank credit has been affected and many have been going slow with expansion,” said O Asher, Managing Director- India operations of Malabar Gold.

According to Debajit Saha, Senior Aanalyst, Precious Metals Demand, South Asia and UAE, GFMS Thomson Reuters, a key factor that brought down gold imports in 2018 was slower store expansion. Fresh stocks for new stores accounts for a large chunk of the import demand.

The export sector did not remain unaffected either. Gems and jewellery exports for FY19 shrunk by 5 per cent to sub $40 billion levels.  However, Gems and Jewellery Export Promotion Council hopes that banks will take a positive outlook on the sector in FY20.

According to Colin Shah, Vice Chairman, GJEPC, there have been some positive developments in the industry. India's exports of gems and jewellery products to the US market have started to pick up. The March quarter gold demand is encouraging. Diamond Producers Association, a global alliance of the leading diamond mining companies, has launched a promotional initiative ‘Real is Rare’ programme for the US, China and Indian market.

“The banking sector exposure to the gems and jewellery sector is mere 2.5 - 3 per cent of the overall requirement for the sector. The industry urges to the banks to relax some norms for working capital lending to the sector. Time has come that the banking sector should look at the gems and jewellery sector in a serious manner, it is only then, India can become world leader in gems and jewellery exports,” he added.