Thangamayil Jewellery Ltd Management Discussions

In 2024, the Indian jewellery market was valued at approximately USD 89.65 billion. This significant figure highlights the markets robust nature in a country where jewellery holds substantial cultural, emotional, and financial value. Gold, including variations like pink gold and blush gold, remains the cornerstone of this market.

The sector is projected to grow at a compounded annual growth rate (CAGR) of 5.7% over the next decade, reaching about USD 124.70 billion by 2030. This growth reflects the expanding middle class, increasing disposable incomes, and a strong inclination towards gold and diamond jewellery as part of cultural and marriage-related traditions.

Diamond jewellery, particularly popular in bridal segments, is expected to see a higher growth rate of 6.6% from 2024 to 2030. The rise in demand is further supported by a consumer shift towards luxury and branded jewellery, and economic factors like increased urbanization and rising GDP per capita. With a young median age of around 27 years, the demographic is driving demand in bridal and fashion jewellery segments. The future of Indias jewellery market looks promising with the integration of technology in sales and production.

Online sales channels are growing rapidly, projected to expand at over 8% CAGR, indicating a shift towards digital consumer habits. Despite offline stores dominating with over 85% of sales, online channels are gaining traction due to increased consumer trust and the convenience of digital shopping. Major industry players are enhancing their online presence, using websites for promotions and engaging customers through social media and digital ads. Technologies like augmented reality offer virtual try- ons, enhancing the online shopping experience. However, challenges such as ensuring authenticity and managing returns are critical to gaining wider consumer trust. As e-commerce platforms continue to evolve, the online jewellery market in India is poised for significant expansion, promising a larger market share in the coming years.

As of the first quarter of 2024, the gold market has demonstrated notable dynamics in both demand and supply. Mine production has increased by 4% year-on-year to 893 tonnes, setting a record for the first quarter. This rise in production is accompanied by a significant 12% increase in recycled gold, which reached 351 tonnes, marking the highest recycling supply since the third quarter of 2020. This increase in recycling is largely a response to higher gold prices.

On the demand side, various sectors showed different levels of activity. Jewellery fabrication demand stood at

535 tonnes. Investment in physical gold bars and coins remained robust, though there was a noticeable decline in investment through exchange-traded funds (ETFs) and similar products, reflecting a mixed sentiment among investors. The overall investment demand decreased by 28% compared to the previous year, mainly due to reduced purchases in ETFs, despite the steady demand for physical gold items.

The spot price of gold, as reported at the end of April 2024, remains high, underlining the strong and continuous demand. This price strength is partly driven by significant purchases by central banks and resilient consumer demand across various markets. Central bank buying, in particular, has been a consistent source of demand, although it fell short of the previous years record pace.

ECONOMIC OVERVIEW

The global economy has been characterized by a rocky recovery, grappling with financial sector turmoil, continued high inflation, and geopolitical disruptions. The International Monetary Fund (IMF) notes a reduction in global growth forecasts, with expected growth falling to 2.8% in 2023 from 3.4% in 2022, before a slight recovery to 3.0% in 2024. Advanced economies are particularly impacted, with growth projections significantly reduced. Amidst these economic conditions, gold prices surged to record highs, reflecting its enduring status as a safe haven. The World Gold Council highlighted an 8% increase in the average price of gold in 2023 over the previous year, underscoring golds appeal during times of economic uncertainty.

In India, the economy has demonstrated considerable resilience, buoyed by strong domestic demand and robust growth in sectors like manufacturing and construction. Despite a global downturn, Indias GDP growth remained strong, supported by a revival in private consumption and significant industrial production. However, government spending saw a contraction which offset some of the gains in other areas of the economy.

In India, the jewellery market has seen mixed impacts. While investment in gold through ETFs saw substantial inflows, suggesting a strong investment demand, the physical gold jewellery market experienced weaker demand in the first quarter of 2024 compared to the previous year. This was primarily due to high local gold prices which dampened consumer enthusiasm for jewellery purchases. Additionally, economic fluctuations and higher customs duties on gold imports contributed to shifts in market dynamics.

The seasonal patterns of gold buying related to cultural and agricultural cycles continued to play a critical role in India. Festivals like Diwali and Akshaya Tritiya, Aadi Utsav (Aadi 18) and Basant Panchami along with the wedding season, stimulated gold purchases, although the volumes were affected by the high price levels. The demand for gold jewellery in rural areas, closely linked to the agricultural harvest seasons, underscores the sectors dependence on broader economic and environmental factors.

The gold and jewellery industry globally and in India has navigated through a complex economic landscape shaped by inflation, geopolitical issues, and domestic economic policies. While gold remains a critical asset in times of uncertainty, the jewellery sector faces challenges that require adjustments to new economic realities and consumer behaviours.

MARKET SEGMENTATION

The Indian gold and jewellery market is segmented based on various product types, materials, and consumer demographics, reflecting a rich diversity in offerings and consumer preferences. Necklaces and rings dominate the product segment, with necklaces accounting for a significant revenue share due to their popularity across various styles and demographics. Rings, particularly valued for their cultural significance in engagements and weddings, are seeing growth with increasing demand for personalized options.

Gold remains the most widely used material, cherished for its cultural, emotional, and financial value, with innovative variants like blush and pink gold emerging. The diamond segment is also notable, especially in bridal jewellery, with expected growth driven by its essential role in marriage engagements.

Women are the primary consumers, though the market for mens jewellery is expanding, including products like rings, pendants, and bracelets, reflecting broader fashion trends and a shift towards high-end items. Regionally, the market varies, with South India known for its diamond cutting and intricate gold jewellery, while West India benefits from robust infrastructure like Surats diamond cutting and polishing facilities.

The market faces challenges such as price fluctuations in precious metals and international competition, particularly from countries like China. However, opportunities abound with the adoption of new technologies and expansion into innovative product lines and markets.

CHALLENGES IN MARKET POSITIONING

The Indian gold and jewellery industry is navigating several significant challenges in its market positioning. Economic

volatility and regulatory changes, such as fluctuations in gold prices and adjustments in customs duties, directly impact the cost structure and demand within the sector. Additionally, the industry faces stiff competition from global markets, particularly from countries like China, where lower labour costs and improving craftsmanship make them formidable competitors. Changing consumer preferences, especially among the younger demographic who favour luxury items like diamonds and platinum, require domestic jewellers to adapt their offerings and marketing strategies to remain relevant. The integration of technology in manufacturing and retailing is also crucial, with innovations such as virtual reality and online sales platforms becoming increasingly important for engaging customers and streamlining operations. Moreover, the COVID-19 pandemic has significantly affected consumer spending on non- essential items and disrupted traditional retail channels, although recovery is underway with the help of digital sales and enhanced online customer experiences. To effectively overcome these challenges, Indian jewellers need to focus on product diversificaron, embrace technological advancements, and improve operational efficiencies.

MONSOON

The impact of the monsoon on the gold and jewellery industry in India is closely tied to agricultural productivity, as a significant portion of gold demand in the country comes from rural areas where the economy is largely dependent on agriculture. In 2024, the Indian Meteorological Department (IMD) has predicted a normal monsoon season, which generally bodes well for agricultural yields and, consequently, for gold purchases. A good monsoon leads to a prosperous harvest, increasing the disposable income among rural populations, who are likely to invest in gold, a traditional asset.

However, despite the forecast for normal rainfall, certain areas experienced below-normal rains in 2024 due to El Ni?o conditions, which could affect the agricultural output and thus potentially dampen the usual post-monsoon surge in gold buying. The fluctuating conditions, such as transitioning El Ni?o to neutral and the variable regional rainfall, can introduce some uncertainty in predicting the exact impact on gold sales for the coming months.

Moreover, the broader economic context, including global market trends and domestic economic policies, continues to play a significant role in shaping the gold market dynamics in India, influencing both price and demand beyond just the agricultural linkage.

CHANGES IN LIFESTYLE

The gold and jewellery industry in India is undergoing significant transformations due to changes in lifestyle and

consumer preferences. The entry of international luxury brands has shifted buying behaviours, particularly among the younger population who increasingly favour platinum and diamond jewellery as luxury items. This trend is challenging domestic players to enhance their offerings in design, quality, and aesthetics to compete on a global scale. Concurrently, the rise of online retail is reshaping sales strategies, with a marked increase in the use of digital platforms for marketing and transactions. This digital shift caters to a tech-savvy consumer base, demanding convenience and personalized shopping experiences. Despite these changes, traditional gold jewellery continues to hold significant cultural importance, particularly during festivals and weddings, but there is a noticeable trend towards modern designs and materials to appeal to diverse consumer tastes.

Risk associated with business and mitigation plans

To mitigate the adverse impact, TMJL has spearheaded certain tangible initiatives like adoption of technology to the hilt, high value product diversificaron like studded items, MRP, third party branded items in the portfolio etc. It has also directed its resources to improve efficiency & productive matrix to improve the performance on a sustainable basis.

The monsoon impact is limited to agricultural income based customers profile. There are two seasons for harvesting in Indian terrain, if one harvest failed, there is a likelihood that next one will give bountiful yields in agricultural activities. Other than the agri based customers, a lot of income is generated out of service sector engagement and also external remitters from natives employed outside the hometown. For the reasons stated above, TMJL does not find it difficult to manage the vagaries of monsoon. This aspect is well captured in the last five years of growth in the company.

Fortunately for TMJL, being a regional player though the trend is shifting to other discretionary consumer spends, it has not affected the local demand for jewellery. State of Tamilnadu is the largest consumer for gold in the entire country. Household savings is applied more on gold for traditional and cultural reasons besides time tested social compulsions connected with weddings. Going forward, shift can be made to less weight gold ornaments to take the heat out of ever increasing gold price impact on sales.

Economic risk

Economic slowdown can affect the demand and the sales for the company.

Mitigation: The Company has a diversified product portfolio that generates robust sales from either category to balance any uncertain circumstances. The present Indian economy

is quite strong as commodity prices have been stable. Since jewellery industry is always associated with wedding and other traditional occasions and demand for jewellery remain constant.

Competition risk

Increasing competition from new entrants as well as existing ones.

Mitigation: The Company manufactures quality products and better services and offers that at a reasonable price to reach people through communications via different media. It undertakes extensive promotion and advertising to create value , positioning and recall for the power brands.

Margin risk

Lack of control over the cost, may lead to lower profitability and can impact future growth prospects.

The centralised procurement policy, by which our team anticipates stock requirement and make bulk purchases at the time when gold price is low. The economies of scale and correct procurement timing enable the company to significantly reduce the cost of the raw material. The company procures a certain quantum of gold on lease from banks and purchases gold on daily basis on the actual sale made by it. This strategy safeguards the company from gold price fluctuation.

Gold price fluctuation risks

Gold price fluctuation risk could arise on account of frequent changes in gold prices either up or downside momentum. It could have adverse impact on earnings. We are maintaining our inventory price hedging around 89:11 basis. This will help the company with any gold price fluctuation. Your Board will take appropriate action in managing the fluctuation impact in gold price movement from time to time.

Change in Government Policies

New government regulations pertaining to taxation and banking stringent norms will affect the demand and supply chain.

Your company with help of well-experienced IT and managerial personnel, the implications of all these regulations are clearly analysed, interpreted and necessary compliance measures are undertaken.

Human Resources

Employee attrition may affect the operation of the Company.

Mitigation: The Company encourages new talent and provides specialised training to the sales force to ensure the roots are grounded well, improving the performance

standards, improving incentive scheme to the employees and positively contribute towards growth of the company.

Seasonal Risk:

Sluggish sales of products due to seasonal changes may affect profitability of the Company.

Mitigation: The wide ranged designed product profile and customized product will help against the seasonal ups and downs.

Compliance risk

Non-compliance of regulations may raise the operation risk for the Company.

Mitigation: The Company has a structured internal control system in place to ensure all statutory rules and regulations are met including changes in taxation and other regulatory framework.

Cost management

The Company is improving meticulously its focus on cost through a resourceful operating system, increase in the production capacity and strengthening of manufacturing units and various sourcing points are being pursued to reduce manufacturing costs and also delivering quality product at lower price. Logistics facilities are strengthened. Synergy optimization in various cost components is achieved.

Internal control systems and their adequacy

The Company has in place adequate system of internal control. It has documented procedures covering all financial and operating functions. These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls, monitoring of operations, protecting assets from unauthorized use or losses, compliances with regulations and for ensuring reliability of financial reporting. The Company has continued its efforts to align all its processes and controls with global best practices in these areas as well.

Some significant features of the internal control systems are:

• Documenting Major Business Processes including financial reporting, Computer Controlling, Security Checks and Top Committee level Plans

• A comprehensive information security policy and continuous upgrades to IT system

• Audit Committee of the Board of Directors, comprising independent directors, which is functional since October 2007, regularly reviews the audit plans, significant audit

findings, adequacy of internal controls, compliance with Accounting Standards, as well as, reasons for changes in accounting policies and practices, if any.

• A well established multi-disciplinary Internal Audit team, which reviews and reports to management and the Audit Committee about the compliance with internal controls and the efficiency and effectiveness of operations and the key process risks

• Monthly meeting of the top management committee to review operations and plans in key business areas

• Corporate policies on accounting and major processes.

• Well-defined processes for formulating and reviewing annual and long term business plans.

• Preparation and monitoring of annual budgets for all trading activities.

• Having introduced and continually upgraded, improved and fine-tuned state of the art Enterprise Resource Planning (ERP) since August 2008, supplier Relations Management and Customer Relations Management, to connect its different locations, dealers and vendors.

Anti-fraud programme

The Board takes responsibility for the total process of risk management in the organization. The Audit Committee reviews reports covering operational, financial and other business risk areas. Taking into Consideration the high risk associated with this business, the organization and management have taken necessary measures towards achieving an environment free of fraud. This is also facilitated by internal audit. The business risks are managed through cross functional involvement and intense communication across businesses. Results of the risk assessment and residual risks are presented to the senior management.

Information Technology

Thangamayil Jewellery Limited has a jewellery retail-based information technology savvy department deploying the best retail solutions in the market to enhance, develop, support and maintain our retail business activity across all our showrooms

Thangamayil has developed an information technology team to test and maintain our own solutions across the showrooms. As a base platform for our ERP we used SAP Business One solution across the showrooms. End to end application to meet the requirements of Jewellery retail business needs, right from purchase of ornament to sale of it, customer management and inventory handling.

Thangamayil jewellery E-commerce is a first of its kind in online jewellery retail segment with an in-store experience

of selling 22kt gold ornaments, silver articles, diamond and platinum jewels. The in-store experience to a customer is to view more variety ornaments on every online visit (not a confined catalogue) with the store price. The ornaments are real photographed pictures with exact product details and real time priced based on the market rate of gold and silver.

Human resources & industrial relations

The Companys Human Resources philosophy is to establish and build a strong performance and competency driven culture with greater sense of accountability and responsibility. The Company has taken pragmatic steps for strengthening organizational competency through involvement and development of employees as well as installing effective systems for improving the productivity, equality and accountability at functional levels.

With the changing and turbulent business scenario, the Companys basic focus is to upgrade the skill and knowledge level of the existing human assets to the required level by providing appropriate leadership at all levels motivating

them to face the hard facts of business, inculcating the attitude for speed of action and taking responsibilities.

In order to keep the employees skill, knowledge and business facilities updated, ongoing in house and external training is provided to the employees at all levels. The effort to rationalize and streamline the work force is a continuous process. The industrial relations scenario remained harmonious throughout the year.

Note: Forward looking statements embedded in the Management Discussion and Analysis above is based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Companys actual results, performance or achievements could thus differ materially from those projected in any such forward looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events.