Project Proposal

Setting up an Authenticity Centre for Gold & Mounted Jewelry

By Tehmasp Printer

OBJECTIVES

Tap the entrepreneurial spirit of the Parsi Youth. Establish a resource for the community to enter a sunrise service industry. Help develop a Parsi business enterprise in one of the fastest growing segments in India namely - Jewelry industry. Participate in initiatives aimed at promoting transparency promoting hallmarking and encouraging consumer activism in matters related to quality, purity, certification etc.

STRENGTHS

Cash in on the trust placed on the Parsi community for its integrity, honesty, dedication & commitment. Professional expertise available in the Authenticity services

PRESENTATION FLOW

Part I Market Potential Huge opportunity in providing an Authenticity service to the jewelry industry.

Part II Proposed Authenticity service to be provided: Assaying & Hallmarking of precious metals Identification & Certification of Gem Stones & Mounted Jewelry mainly diamonds

MARKET UNDERSTANDING

Global Gems & Jewelry industry on the threshold of a largescale transformation.

Last 5-6yrs the industry has seen more changes than ever before. Next 10yrs likely to bring in more deeper and far reaching changes across the value chain. Fascinating industry traditional on one hand glamorous on the other.

KEY INDUSTRY SEGMENTS

Diamonds Diamond studded jewelry is the largest segment estimated @ USD 69billion

Gold Primary use is in jewelry fabrication which accounted for 67% of total gold demand (volume terms) in 2005.
Platinum often the metal of choice for high-end precious jewelry across the world. Its showing an increasing trend in India too. Colored gemstones

GLOBAL : GROWTH IN JEWELRY RETAIL SALES

CAGR (2000-2005)

200 160
USD Billion 113 111 118 124 136

146

5.2% 6.4%

120
4.4%

80
5.5%

40
5.0%

0
Others Plain Platinum Jewelry Plain Gold Jewelry Diamond Jewelry

2000 5.4 7.3 46.4 54

2001 5.3 7.1 41.5 56.7

2002 5.6 8.0 44.4 59.5

2003 5.9 9.1 46.3 62.5

2004 6.5 9.5 54.0 65.7

2005 7.3 9.0 60.7 68.9

World jewelry sales grew at a steady pace

CAGR : Compounded Annual Growth Rate

Source : KPMG Analysis

INDIA :GROWTH IN RETAIL SALES OF JEWELRY

CAGR (2000 2005)

14 12 10

10.20%

USD Billion

8 6 4 2 0
2000 7.49 2001 7.16 2002 6.4 2003 7.4 2004 9.9 2005 12.2

India is one of the fastest growing market for Jewelry, growing at a rate of 10.20% per annum over the last 5years.
CAGR : Compounded Annual Growth Rate

Source : KPMG Analysis

GLOBAL & INDIAN BREAKUP OF INDUSTRY - 2005

% Market Share of various jewelry segments
Plain Platinum Others jewelry 5% 0%

Plain Platinum jewelry 6%

Others 5%

Diamond jewelry 12%

Diamond jewelry 47% Plain gold jewelry 42%

Plain gold jewelry 83%

Global

India

Source : KPMG Analysis

CHANGES IN RETAIL JEWELRY SALES IN KEY MARKETS

(USD billion)
2005 2010
43

2015

5
2005

5
2010

4
2015

7
2010

12

27 13
2005 2010 2015

2005

2015

U.K.
77 58 45

Turkey

China

Japan

2005

2010

2015

U.S.

12
7
2005

9
2010

8
2015

7
2010

6
2005
2015

66 49 35

Italy
37 21

13
2005 2010 2015
2005

18

24

12

2010

2015

2005

2010

2015

RoW

Middle East

India
Source : KPMG Analysis

INDIAN JEWELRY MARKET A SNAPSHOT

Indian consumers increasing penchant for diamond jewelry and the rekindling of her affair with gold jewelry meant that its share in the world market went up to 8% from a low of 5.5% in 2002

Fastest growing diamond jewelry market growing at the rate of 19% in 2005
Largest player in the polished diamond industry 57% of world produce Large producer and exporter of various forms of jewelry. output in 2005 USD 12.17billion India is also the emerging jewelry fabrication centre riding on a number of advantages such as cheap skilled labor, large domestic demand for jewelry & an added advantage of being the largest producer of polished diamonds.

INDIA: WORLD JEWELRY FABRICATION SHARE

India 14%

RoW 86%

Indias share of world jewelry production output in value terms (2005)

Source : KPMG Analysis

GEMS & JEWELRY VALUE CHAIN - INDIAS PRESENCE

Mining Diamond

Processing

Fabrication

Consumption

Gold
Platinum Others

Established Presence Emerging Centre / Markets

INDIAN RETAIL LANDSCAPE

Traditionally dominated by small scale local players is rapidly moving towards greater organization as retail channels mature and obtain greater penetration across the country. Retail organization will enhance the sales of jeweler in India. World jewelry sales will be positively impacted because of this change. The increasing levels of consumer sophistication, both in terms of design & product demand as well as a general orientation towards gemstone certification jewellery hallmarking

INDIAN RETAIL LANDSCAPE

Experimentation with new retail formats. Increased emphasis on branding and marketing Value addition in jewellery will increase due to penetration of brands Growth of e-retail in India. Most online jewellery purchases fall in the 18-35year age group.

CHANGING TRENDS IN THE INDIAN RETAIL MARKET

TRADITIONAL PRACTICE Jewelry considered an investment, particularly gold jewelry Marriage and festival season are peak seasons. EMERGING TREND Wearable jewelry as a fashion accessory and gifting. Wearability and gifting dimensions are distributing demand throughout the year.

22 karat jewelry
Dependence on the family jeweler in the locality. Traditional and ethnic designs.

Acceptance of jewelry of lower karatage, particularly in studded jewelry.

Growing interest in brands which personify quality and trust. Demand for fashionable, lightweight and innovative designs.

Predominantly gold-based jewelry (particularly yellow gold)

Growing interest in white gold and newer precious metals such as platinum, diamond studded jewelry is also generating significant interest across the country.

Reliance on local jewelers reputation / trust in local jewelers stated karatage.

Introduction of objective means of quality measurements through certification and guarantees.

Jewelry largely sold on the basis of prevailing gold price per gram with additional mark-ups for making charges and profit margins.

Jewelry is being sold at a fixed price basis (maximum retail price) by branded players.

BRANDING THE NEW MANTRA

Indian consumers are becoming brand conscious and are willing to pay significant premiums for purchasing branded products. Large-scale marketing and branding campaigns by large diamond marketing companies and industry associations have created brands that in many ways kick started the branding trend in the country. Nakshatra Gold Expression Sangini

A representation of rising income levels in India

90 80 70
USD Billion

14.9 12.3 5.5 22.1 28.7 31 33.9

60 50 40 30 20 10 0 1996 Low Income

30.4

23

2002 Mass Affluents

2005 High Income Groups

Increasing disposable incomes and the rising number of affluent/high net worth individuals (HNIs) in the country have opened up the market for high-end premium brands.
Source : KPMG Analysis

BRANDING AS AN EMERGING TREND

Industry has seen two distinct branding waves Company level in an effort to maximize margins and tap target markets Industry level pushed by large upstream players for market expansion and demand generation

BENEFITS OF BRANDING
Increasing awareness and interest in the minds of consumers towards jewelry as a whole Preventing commoditization branding guards against the erosion of the cardinal value proposition of jewelry its linkages with traditional values and emotional expression

Impact on consumer confidence branding fulfills the necessary function of demystifying the process of purchasing jewellery including quality parameters to watch out for
Impact on retail margins given that the added value of brands in other luxury goods categories (such as watches and perfumes) ranges between a whopping 70-90% the jewellery industry has a lot to catch up

INCREASING TRANSPARENCY
Vicious circle of low transparency low growth.

Lack of transparency has constrained the industry from growing fast. An aversion to transparency has meant that companies have missed out on access to relatively cheaper capital by not accessing equity markets.

BUILDING ENTERPRISE CAPABILITIES

Strategic & Business Planning Capabilities Strategic sourcing capabilities Managing mergers acquisitions & alliances Marketing capabilities Technology & Product innovation.

Rising capital Managing financial & operational Risks

Managing operational costs

Grow the Jewelry Market Defining robust organization

modules Sourcing & Managing Talent Managing Processes

Managing Supply Chain

Adopting best practices

Growing the Jewelry market involves undertaking initiatives at a Consumer & Industry level

1
Promote jewelry as a Category Enhance image of the Industry

5 2
Identify new products & Consumer segments Enhance talent supply

Consumer end

Grow the Jewelry Market

Industry end

6
Reduce financing Cost

3
Manage a portfolio of markets

7
Professionalize and transform family owned businesses

CURRENT SCENARIO

Jewelry Authentication

Assaying & Hallmarking

Gemstones & Diamond Verification / Certification

Mobile Laboratory

Gold

Platinum

Silver

Own Coinage

Loose Stones

Mounted Jewelry

Education to Trade & Consumers

Portable equipment for Hallmarking / Assaying / Diamond Grading in mounted form at Jewelers end

DEFINING THE SERVICES

Assaying Purity of the precious metal is ascertained. Hallmarking Marking of the tested metal.

OUR PROPOSAL

Merger of the two services that will meet the Authentication needs of mounted jewelry Hallmarking of precious metals and Analysis of gem stones in jewelry mountings

Mobile Laboratory Grading & Hallmarking will be done at the jewelers end whereby eliminating the logistics of to and fro transportation / security concerns

INDUSTRY STANDARDS, CERTIFICATION & HALLMARKING

By & large jewellery industry indifferent to the adoption & establishment of formal or informal industry standards However, a growing industry with more & more global business transactions, a need has arisen for establishing standards. India which is one of the largest markets for precious jewelry, quality standards are conspicuous by their absence. The Indian government has made hallmarking mandatory by 2008 Industry will see an increasing level of adoption of hallmarking in gold and certification in gemstones

CURRENT STATUS

Diamonds
Customers do not usually demand certification of small diamonds, as it is not cost-efficient. Larger stones are increasingly being sold along with certificates of authenticity. Consumers in US & Europe rely on certified diamonds and diamond studded jewelry.

Jewelry
Customers do not demand hallmarking for low end jewelry Customers in Europe & US are more insistent on hallmarking of jewelry than customers in India

WHY HALLMARKING AND ASSAYING SERVICE?

Precious metals used in jewelry and giftware are always used as an alloy mainly gold

The most experienced jeweler or chemist cannot tell how much precious metal is there in an alloy
High price of precious metals offers a huge opportunity for fraud To protect the public & honest suppliers from those who are tempted to cheat them Hallmarking is mandatory in various countries across the world like UK India being the largest consumer of gold jewelry, the government of India has declared the hallmarking of precious metals to be mandatory from 2008 onwards Hallmarking & Authenticity services can mint their own coins for public consumption.

CURRENT PLAYERS / COMPETITION

Place
Mumbai New Delhi Kolkata Trichur Chennai

No. of Centers
5 5 3 3 4

Coimbatore
Surat Rajkot Vizag Calilut Cochin Pune

3
1 1 1 2 5 1

Baroda
Ahmedabad Hyderabad Bangalore

1
2 1 1

Kanpur

As per BIS figures number there are 40 Hallmarking Centers across the country

INFRASTRUCTURE
Manpower & Training Assaying and Lab training as well as manpower will be provided by the consultant Place Space required is ideally around 1000 sq.ft.

WORKINGS OF AN ASSAYING & HALLMARKING CENTRE

List & Cost of Equipments
Particulars XRF Analyzer Rate (INR) 1,900,000 Nos. 2 Amount (INR) 3,800,000

Laser Maker-5markings per piece

Analytical Balance Cupellation (Assaying) Furnace Melting Furnace Annealing Furnace Scrubber for Flu Gases Miscellaneous Consumables

1,900,000
3,00,000 1,00,000 1,00,000 1,00,000 1,00,000 3,00,000

1
3 2 1 1 1 1

1,900,000
9,00,000 2,00,000 1,00,000 1,00,000 1,00,000 3,00,000

Air Conditioners
Computers CCTV Biometric System/Metal Detector One time BIS License Fees Consultant/Turn Key Operator Furnishing & Interiors Total

25,000

4
2 4

1,00,000
50,000 50,000 50,000 1,00,000 2,50,000 5,00,000 85,00,000

BUSINESS PROJECTIONS
Business Model Revenue (INR) Investment (INR) Expenses (INR) Gross Profit (INR) Output per day pcs.

Case I (Conservative Output) Operating in 1Shift 21,600,000 7,000,000 12,060,000 2,540,000 800

Operating in 2 Shifts

43,200,000

7,000,000

20,340,000

15,860,000

1,600

Case II (Realistic Output) Operating in 1Shift Operating in 2 Shifts 32,400,000 64,800,000 7,000,000 7,000,000 12,060,000 20,340,000 13,340,000 37,460,000 1,200 2,400

Projected Income after 5 years

WHY CERTIFICATION & INFORMATION OF GEM STONES?

Prices of gem stones are quality sensitive. 1carat diamond can cost anywhere from INR 0.1million 0.6 million. while the size of the diamond is the same the quality is what makes the difference. The most experienced jeweler or manufacturer does not have the expertise to differentiate the quality of the gem stones. Hence, the importance of an independent gemological laboratory for certifying and educating the various public in the value chain of the international standards of gem stones

WORKINGS OF A GEM STONE LABORATORY AND A TRAINING CENTRE

Gem stone Laboratory entails Grading and analysis of loose gem stones & diamonds Grading and analysis of mounted jewelry Training courses in gem stones and jewelry

CERTIFICATION UNIT

Certification Unit involves certification of : loose stones (Gemstones & Diamonds) mounted Jewelry - Melle sizes identification of treatments to enhance gem stones & diamonds

To start with we shall offer only services for grading mounted jewelry
Costing of the services of the mounted Jewelry - Melle sizes This part of the service is not machinery intensive more important is the human resource and expertise rendered by them

COSTING OF CERTIFICATION UNIT

The main equipment for the identification process is the microscope Each microscope costs USD 2,500 (INR 1,15,000) 10 Gemologists would require 10 microscopes costing USD 25, 000 (INR 11,50,000)

5sets of mounted color master sets each costing USD 2,000 (INR 90,000) i.e.. USD 10,000 (INR 4,50,000)

Other Equipment USD 15,000 (INR 6,75,000)

Lets help create A Unique One- Stop-Shop for all the Authentication needs of the Gems & Jewelry Industry