Aditya Birla Group's jewellery foray up against headwinds

Aditya Birla Group chose to make ₹5000 crore investment in branded jewellery business when the industry is facing a slew of challenges including rising gold prices and lowering demand. Besides that the jewellers see a dip in interest among new generations in wearing gold ornaments.

The sales of jewellery and gold items remained sluggish on the auspicious Akshaya Tritiya day in April. Jewellers witnessed 10-15% decline in sales volume on Akshaya Tritiya compared to last year as gold prices zoomed around 20% since last year.

Jewellers are also struggling to find markets abroad. The gems and jewellery exports grew 2.48% year-on-year in FY23 to ₹3 lakh crore. But the exports contracted by 30% as per April trade data. The revival of Chinese economy and the recovery of the U.S. market from recession fears is necessary to change the scenario for the sector.

According to an owner of a pan-India jewellery chain, the interest of new generations in buying gold ornaments is drastically reducing in India. "They are not much interested in the yellow metal as an ornament. But they are convinced about the idea of investing in gold," he said.

Tata Group company Titan faced cyclical headwinds due to a sudden spike in gold prices. Titan's jewellery business Tanishq contributes 85% to overall revenues and has a 6% market share in a highly fragmented industry. Titan has transformed into a lifestyle company, expanding into eyewear, perfumes, saris, bags, sunglasses and wearables, besides jewellery to counter seasonal volatilities.

However, the scenario was different in Q1, thanks to the demand in the festive season. The jewellery business of Reliance Retail saw a reven growth of 28% Y-o-Y, on the back of the wedding season and regional festivities. The business continued to focus on strengthening product offerings with new collection launches.

The Tata Group firm said its first-quarter revenues were the second-best, buoyed by a strong festive demand that came after a gap of two Covid disrupted periods. Titan reported a 13-fold jump in YoY net profit at ₹793 crore in the June quarter compared with ₹61 crore profit in the same quarter last year.

Aditya Birla Group has recently announced two more diversifications in paints, and B2B e-commerce for building materials, apart from jewellery. The company said that branded jewellery business will be housed in a new venture, 'Novel Jewels Ltd', engaged in building large-format jewellery retail stores across India, with in-house jewellery brands.

"This foray is a strategic portfolio choice that allows us to tap into new growth engines and expand our presence in the vibrant Indian consumer landscape. With rising disposable income, discerning and aspirational consumers are leaning more towards design-led, bespoke, and high-quality jewellery," said Kumar Mangalam Birla, Chairman, Aditya Birla Group in a press statement.

Rating agency ICRA expects the organised jewellery retailers to continue to outpace the industry over the medium term on the back of industry tailwinds in the form of accelerated shift in market demand from unorganised retailers and planned expansion of retail presence to capitalise on the tailwinds. The organised players like Birla Group will have the advantage of low-cost capital as players in the unorganised sector (which has around 70% market share) struggle to get loans from banks due to defaults.