Jewel in the crown

Mehul Choksi has already conquered the jewellery market in India and now is looking to bring his experience and investment dollars to the Middle East
By Shane McGinley
Sun 24 Jun 2012 08:57 AM

For tourists and business leaders looking to top up their coffers, the UAE caters to almost every need. For some time now, gold vending machines have been placed in some of the country’s most upmarket locations, such as Emirates Palace in Abu Dhabi and Dubai Mall, the world’s largest retail venue.

Further afield in Las Vegas, couples have been able to access vending machines to buy last minute wedding rings and can even get married and divorced at the ATM or drive through.

Now imagine taking that combination of luxury and convenience and applying it directly to the jewellery trade. Gitanjali Group, India’s largest jeweller, took this concept and launched vending machines displaying up to 36 gold, silver and diamond pieces. They proved so popular that it is now planning to expand the machines across India and into the Gulf.

Mehul Choksi, chairman and founder of the company, says the machines could soon be making an appearance in Dubai as part of plans to invest up to $75m masterminding the jeweller’s entry into the lucrative Middle East market.

“At the moment we are targeting opening nearly 75 outlets in India and we are seeing great demand from other countries,” says Choksi.

The Gitanjali Group has an annual turnover of over $2.1bn and has around 4,000 points of sale in India, with additional outlets in China, the US, Japan and the UK.

A favourite with Bollywood film stars, with Shah Rukh Khan, Katrina Kaif, Salman Khan, Priyanka Chopra, Sonakshi Sinha, Bipasha Basu, Kareena Kapoor already signed up as brand ambassadors, Gitanjali earlier this year opened its first store in Lamcy Plaza in Dubai.

“We are opening a series of stores in the UAE… We have 50 shop-in-shop contracts all over the UAE. We want to be in 110 shops in the UAE within one and a half years time,” Choksi says. “It is a total investment of up to $50m to $75m over the next two years,” he adds.

The expansion will create around 75 new jobs over the next two years, Choksi estimates. The brand is aimed at the expatriate Indian market, but Choksi says it will also seek to launch Arabic-specific products to appeal to residents in the Middle East.

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“We have been familiar with the market… we have been working very closely with the UAE for the past fifteen years.”

The UAE is not the only location in mind. The company is also planning to expand the brand in Saudi Arabia and is also looking at opportunities in Qatar, Kuwait and Bahrain. “We are planning a brand expansion in Saudi Arabia… Our brands are very strong and at the moment we are on our own,” Choksi says.

Listed on Indian bourses since 2007, net sales for the full year to the end of 12 March rose 33 percent to RS12,498.3 crore ($2.257bn), with jewellery sales up 40 percent to RS7,007.5 crore ($1.265bn) in the same period.

With its entry into the Middle East, Choksi has ambitious plans to stake his claim on the market, especially with regard to Indians living in the region. “Our main target is the Indians… We will for sure be able to take five percent share of the Middle East market,” he says modestly.

Eventually, Choksi says he wants to see his empire one day become as big as the likes of Louis Vuitton Moet Hennessy (LVMH) or Cartier. Tiffany & Co, the biggest US luxury jewellery retailer, is looking to boost its sales in Asia and with China and India representing about 55 percent of global demand for gold jewellery, it is no wonder the big players are targeting Gitanjali’s dominance.

At present, Gitanjali has linked up with around 25 Bollywood names to plug its products and therefore it is not surprising that around half of its sales are now in India, with the rest in the US, China, Hong Kong, Japan, Europe and the Middle East.

The company name means “an offering of songs” in Sanskrit and combines the names of Choksi’s sisters, Gita and Anjali. Gitanjali owns the Nakshatra, Gili and D’damas brands in India, Samuels Jewellers and Rogers Jewellers in the US and the Aston Luxury Group, which has the Stefan Hafner and Giantti brands.

Founded in 1966 by Choksi’s grandfather in the western city of Surat, India’s diamond-cutting and polishing hub, Choksi would hunt for mislaid gems on the floor of his family’s house as a child, getting rewarded with a few rupees by his merchant father. He joined the company straight from school at seventeen as a polisher.

“Jewellery is like alcohol,” Choksi says. “In good times it works because it’s a celebration. In bad times it works because it’s a hedge against inflation; it’s a hedge against bad times.”

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Slowing economic expansion in China and India may curb jewellery demand and already gold demand growth in China is stagnating as declining prices deter investors, Xin Zhihong, vice president of Lao Feng Xiang, the mainland’s biggest gold jewellery maker, said in an interview earlier this year.

Consumption in India was curbed when jewellers shut their shops for three weeks after the government doubled the tax on imports of gold bars and coins to four percent on16 March and imposed a one percent excise duty on non-branded jewellery. While the excise duty was later removed, the stoppage cost the industry about RS200bn ($3.6bn) in revenue, according to the All India Gems & Jewellery Trade Federation.

However, Choksi sees this as an opportunity for the Middle East operations and he says people are now opting to buy in the Gulf, where there is less duty, rather than travelling to India. “In India [the increased tax] doesn’t make much difference [to sales] but certainly there has been more buying in the Middle East for India,” he says.

Worldwide luxury sales growth may slow this year before accelerating in 2013 as Europe’s debt crisis hurts demand and China’s economy cools, Bain & Co, a Boston-based adviser to companies on everything from marketing to mergers, said in a report in May.

Gitanjali’s sales of $2.52bn in the twelve months to December are less than Tiffany’s $3.64bn in the year to January and are low compared with LVMH’S ¤23.7bn ($29.9bn), data compiled by Bloomberg shows.

The jewellery unit of Compagnie Financière Richemont, which includes Cartier and Van Cleef & Arpels, had sales of 4.59bn in the year to 31 March.

The Indian jeweller’s market value of $511m is small compared with Tiffany’s $7.7bn and LVMH’s ¤62.3bn ($78.6bn), according to data compiled by Bloomberg.

Choksi owns 49.7 percent, or 45.29 million shares, meaning the value of his stake is now about RS14.1bn ($252m).

Gitanjali’s sales increased more than fivefold in the past six years since its listing in Mumbai in 2006. Choksi says he is seeking “some very top-end brands” and more stores in China and India.

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While Choksi has a bullish stance on diamonds and says they have increased in value by around 20 percent, the producers of the gems are not so confident. BHP Billiton (BHP) and London-based Rio Tinto Group, the world’s biggest and third-largest mining companies, respectively, said this year they are seeking to sell their assets.

Diamonds are more attractive for investors because they don’t take up much space and demand is outstripping supply, Choksi says.

Prices of top-quality gems climbed 22 percent in 2011, the biggest advance since at least 2006, according to the Rapaport Diamond Trade Index. The index calculates the average price for the top 25 best-quality one-carat diamonds. By contrast, gold rose ten percent last year.

Global demand for diamonds will increase by an average of 6.4 percent a year to almost 247 million carats by 2020, while output may rise an annual 2.8 percent to 175 million carats, Bain said in a report in December.

“If you sit on a fast horse, you win the race,” Martin Rapaport, the chairman of Rapaport Group, which operates the diamond pricing service, told Bloomberg. “As long as consumer demand continues to flourish in India and the government doesn’t create problems, Choksi will sit on a fast horse.”

While he has already conquered India, the race is now on for Choksi to win over the Middle East.

Profile: Mehul Choksi — the man with the golden hands

Mehul Choksi is chairman and managing director of Gitanjali Group, one of the largest integrated diamond and jewellery manufacturer-retailers in the world and a leading name in the global gem and jewellery industry.

From the mid-1980s he has led the expansion and diversification of the company. In the early 1990s, he pioneered the development of branded jewellery in India, launching Gili in 1994, and since then has developed a large portfolio of renowned jewellery brands for different consumer segments and needs, which are retailed both in India and overseas. Today, brands from the Gitanjali Group including Nakshatra, Gili, D’damas, Asmi, Sangini and others are among the most visible and largest selling in India. Under him the group has expanded to international markets and now owns and operates two large retail chains (Rogers and Samuels) in the USA, and has retail operations in Japan, China, Italy, Middle East and other countries through acquisitions and tie-ups.

Choksi is now spearheading the expansion of the group into the luxury lifestyle segment in India and abroad.

Choksi is a member of the National Executive of FICCI and the chairman of the FICCI Gems and Jewellery Committee. He is also closely associated with other trade and industry associations like Assocham, CII and The Gem and Jewellery Export Promotion Council (GJEPC), of which he is a former chairman.

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