One sector where Tata, Birla and Ambani will slug it out

The Aditya Birla Group, a conglomerate with business interests spanning metals and cement to financial services and fashion, is now entering jewellery sector where other big players are already present such as Tata Group with its Tanishq brand and Mukesh Abani’s Reliance with its Reliance Jewels, besides other national chains such as Kalyan Jewellers and Joyalukkas.Indriya, the Aditya Birla Group’s jewellery brand, will simultaneously open four stores in three cities – Delhi, Indore and Jaipur – and expand to more than 10 cities within six months. Aditya Birla group chairman Kumar Mangalam Birla has said the brand will be among the top three national players over the next five years, The group has allocated an investment of Rs 5,000 crore for building the new-age jewellery business.

What is drawing biggies to the jewellery sector?

Why is Birla entering a sector where a big player like Tata is well-entrenched and growing besides several other national-level brands while an Ambani brand too strives to make its place?

According to Birla, the ongoing value migration from informal to formal sectors, rising consumer preference for trusted brands, and the ever-booming wedding market present substantial growth opportunities.

The biggest attraction of jewellery sector in India is its largely unorganised nature which offers a huge scope to grow for big, orgaised players. Although jewellery is emerging as a nationwide trend for several players, it still primarily operates on a hyper-local level.

The jewellery sector has been experiencing a significant trend towards formalisation, with the organised market accounting for 36-38% of the total jewellery market, compared to 22% in FY19, as per a Motilal Oswal Research report released last month.

Motilal Oswal analysed the organized jewellery market by players to gain a deeper understanding of the industry. The top 10 players in the organized jewellery sector collectively control over 30% (90% of the organized market) of the total jewellery demand in India. We estimate that these players held less than 20% of the total market share in FY19. The proliferation of stores and consumers’ growing inclination towards purchasing jewellery from branded retailers, especially in the last 3-4 years, have brought about significant shifts in the market composition. A recent CRISIL Ratings report revealed that organised retailers will continue to gain market share at the expense of the unorganised ones, supported by changing consumer preferences and store expansion into tier I and II cities and beyond.

The total jewellery market reported an 8% revenue CAGR during FY19-24, reaching a market value of Rs 6,400 billion. The organised market clocked ~18-19% revenue CAGR while Titan, Kalyan, and Senco combined recorded 20% revenue CAGR during FY19-24.

“We are optimistic about the jewellery category and anticipate ongoing rapid shifts in consumer purchasing behaviour, transitioning from unorganised/local to organised channels. Factors such as increasing ticket prices, enhanced shopping experiences, greater product variety, etc are fueling this momentous trend,” the Motilal Oswal report said.

What lies ahead for the jewellery sector?

Organised gold jewellery retailers are expected to clock 17-19 per cent year-on-year revenue growth in 2024-25 while volume growth is likely to stagnate due to rising gold prices, a CRISL report said in May. “Apart from ramping up branding and marketing expenditure, retailers are likely to offer higher discounts to buyers even as they continue to expand product designs and offerings in a bid to attract customers amidst higher gold prices. We expect a shift to gold jewellery of lower carat and continued promotion of the gold exchange programme to support volume,” Crisil Ratings Director Aditya Jhaver said. Crisil Ratings had said in May that supported by healthy balance sheets, store expansions (primarily by large jewellery retailers) have seen strong double-digit growth post-pandemic. The pace of store addition may moderate to 10-12 per cent in 2024-25, given the flattish volume.

Gold demand in India fell up to 15% year-on-year in the April-June quarter, with consumers shying away from the precious metal as prices escalated. With very few wedding dates in July, demand for gold jewellery did not pick up in the first half of July either, although some jewellers said certain markets saw sporadic sales increases due to the Rath Yatra festival, an auspicious event in the Hindu calendar.

However, the customs duty cut in Budget 2024-25, which was presented on July 23, has sparked a gold rush at jewellery stores as consumers hurry to stock up on the yellow metal ahead of a busy wedding season. Jewellers are expecting a demand rise of 20% this quarter, with the first major purchase coming in for the Raksha Bandhan festival in the second week of August. In the June quarter, gold demand fell by 15% as higher prices deterred potential buyers. Gold trade had expected the upcoming budget to introduce multiple measures to boost retail consumption and increase the consumption of jewellery and gold products.

Aditya Birla Group’s entry into the jewellery segment coincides with the reduction in customs duty on gold, silver and platinum in the budget and right ahead of the beginning of the festive and wedding season.

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