Shree Ganesh Jewellery House I Ltd Management Discussions

GLOBAL ECONOMiC OVERViEW

The global economy has grown at a modest pace of 3.40% for the financial year 2014-15, though this is comparatively better given the negative forecast of the world economy since the financial meltdown in 2008. It must be emphasized that the pattern of growth is largely uneven across geographies. The major push has come from U.S.A and the developing economies despite the Euro Zone performing poorly. The Euro area is still in early phases of recovery. Yet, despite the oil slump and the political instability in the whole of Middle East region, economies have continued to grow though at a moderate rate. Export outlook is cheerful given the fact that countries are seeing a rise in demand combated with increase in domestic consumption.

* (Excludes the G7 (Canada, France, Germany, Italy, Japan, United Kingdom, United States) and euro area countries)

(Source: International Monetary Fund 2015)

INDIAN ECONOMIC REVIEW

The Indian economy grew the fastest since 2011 at 7.30% in FY 2014-15 which was in line with the advance estimates and marginally higher than the 6.90% recorded in the previous fiscal. But the main number to highlight was that the economy expanded by 7.50% in Q4 FY2014-15 which was better than the growth recorded by China. With the GDP numbers indicating a soft and gradual recovery and a general pickup in manufacturing activities (7.10% in FY 2014-15 as compared to 5.30% in FY2013-14), India is expected to gather pace and overtake China to be the fastest-growing emerging market in the current fiscal.

The Indian economy has been one of the best performing emerging market economics due to a low inflation and shrinking trade deficit and current account deficits, largely aided by a substantial fall in crude and commodity prices, including gold, which are the major consumer of our foreign exchange reserves. Our foreign exchange reserves have risen to over USD 353 billion, owing to lower import bills for crude and gold and steady FII inflows into the debt and equity markets.

Strong macro-economic factors such as Indias growing GDP (higher disposable income, lower inflation level leading to a likely rate cut cycle by the RBI (affordable pricing), a falling fiscal current account deficit and governments continuous thrust of "Make in India" and reviving-up the domestic demand (making India a global manufacturing hub) provides an impetus for the growth of the economy and hence translates into an improved macro picture for India in the coming years.

GLOBAL JEWELLERY iNDUSTRY

U.S. currently accounts for the largest jewellery market in the world with more than half of its market being dominated by the diamond jewellery segment. Regionally, Asia Pacific holds the worlds largest jewellery market and is being driven largely by China and India which are the two largest consumers of gold in the world and also hold majority of the processing and manufacturing industry for jewellery. The global market is now witnessing an improvement in the jewellery sales overall and with the rising disposable incomes and changing lifestyles; the global jewellery market is set to experience a strong growth over the coming years. However, the market is still challenged by the large unorganized markets, particularly in the developing economies.

According to Global Gems and Jewellery Market Forecast & Opportunities, 2018 the jewellery market worldwide has grown steadily over the last few years while it slowed down during the global economic recession but is likely to grow at a faster rate compared to the growth rate of past three years. The value of worlds jewellery market is expected to grow at the CAGR of over 5% over the next five years. The global market for jewellery is expected to surpass USD 257 Billion revenues by 2017. The market is predominantly driven by the Asia Pacific and the Middle Eastern markets, but U.S. continues to remain the dominant player in the industry.

INDIAN JEWELLERY INDUSTRY

The Gems and Jewellery sector in India plays a significant role in the Indian economy, contributing around 6-7 per cent of the countrys GDP. One of the fastest growing sectors, it is extremely export oriented and labour intensive. The Government of India has declared the sector as a focus area for export promotion based on its potential for growth and value addition. The domestic gems and jewellery industry had a market size of Rs 2,51,000 crore (US$ 40.45 billion) in 2013, and has the potential to grow to Rs 5,00,0005,30,000 crore (US$ 80.59-85.43 billion) by 2018, according to a study by a leading industry body. The study also projected that the countrys gems and jewellery market could double in the next five years. The growth will be driven by a healthy business environment and the governments investor friendly policies. India is deemed to be the hub of the global jewellery market because of its low costs and availability of high-skilled labour.

India is the worlds largest cutting and polishing centre for diamonds, with the cutting and polishing industry being well supported by government policies. Moreover, India exports 95 per cent of the worlds diamonds, as per statistics from the Gems and Jewellery Export Promotion Council (GJEPC). The industry is projected to generate up to US$ 35 billion of revenue from exports by 2015.

Indias gems and jewellery sector has been contributing in a big way to the countrys foreign exchange earnings (FEEs). The Government of India has viewed the sector as a thrust area for export promotion. In FY 2014, Indias gems and jewellery sector contributed US$ 34,746.90 million to the countrys FEEs.

OUTLOOK

Currently, the jewellery market is majorly constituted by unorganised players which account for around 80% of the total market share. However, in the recent past, there has been an increasing consumer preference for branded and hallmarked jewellery with better quality and designs. With fast-changing consumer preferences and aggressive retail expansion by organised jewellery retailers, the market share of organised players has increased to around 20% in 2014 - up from sub 5% a decade ago. Furthermore, considering the vast untapped jewellery demand potential of non-metro cities, there is a vast scope for organised jewellery retailers with superior brand, product quality, designs and innovative marketing initiatives to undertake aggressive geographic expansion across India. The organised jewellery retailers are expected to continue to grow faster than the unorganised players, thereby gaining incremental market share.

RISKS AND CONCERNS

Global economic slowdown, increase in raw material cost, volatility in currency, inability to maintain an operating environment, changes in the regulatory regime are few risks which may affect the anticipated growth in the industry.

INTERNAL CONTROL SYSTEMS

The Companys internal audit system is geared towards ensuring adequate internal controls to meet the increasing complexity of business, for safeguarding the assets of the Company, identifying weaknesses and areas of improvement and to meet with all compliances. The Internal Auditors carry out audit in different areas of Companys operations and the reports of the findings are reviewed periodically by the Audit Committee.

CAUTIONARY STATEMENT

Statements in this report pertaining to the Companys objectives, projections, estimates, exceptions and predictions are forwardlooking statements subject to the applicable laws and regulations. These statements may be subject to certain risks and uncertainties. The Companys operations are affected by many external and internal factors which are beyond the control of the management. Therefore, the actual position may differ from those expressed or implied. The Company assumes no obligation to amend or update forward-looking statements in future on the basis of new information, subsequent developments or otherwise.