Diamond-Seller Choksi Takes on World With Bollywood: Commodities
Mehul Choksi sees his jewelry business one day joining LVMH Moet Hennessy Louis Vuitton SA (MC) and Cartier among the biggest names in luxury goods.
Choksi is chairman and managing director of Gitanjali Gems Ltd. (GITG), India’s biggest diamond and gold-jewelry retailer by sales. He has accumulated 70 brands and more than 4,000 retail outlets worldwide as rising incomes in China and India, the two fastest-growing major economies, spur consumer demand.
“The largest luxury player will emerge to be in India and China in five to 10 years’ time, and certainly we will attempt to be one,” Choksi, 53, said in an interview at his headquarters in Mumbai’s Bandra-Kurla Complex, where he has an open-air fashion show ramp to display the company’s collections.
Tiffany & Co., (TIF) the biggest U.S. luxury jewelry retailer, Graff Diamonds Ltd. and Hong Kong-based Chow Tai Fook Jewellery Group Ltd. (1929) are among those seeking to boost sales in Asia. China and India represent about 55 percent of global demand for gold jewelry, the World Gold Council estimates. Diamonds will beat gold as an investment, said Choksi, who owns both as well as real estate in the U.S., Dubai and India.
The number of billionaires rose to 351 in Asia last year from 245 in 2010, according to Credit Suisse Group AG. That compares with 251 in Europe and 332 in North America. China will topple India as the biggest gold consumer in 2012, the London- based WGC predicts. The nation of 1.34 billion people may surpass the U.S. as the biggest diamond market by 2015, the Antwerp World Diamond Center said in February.
Millionaires in China may represent about 50 percent of the total across 10 major Asian economies by 2015, according to a study by CLSA Asia Pacific Markets, a brokerage and investment group. Sales of luxury goods in China will reach about 180 billion yuan ($28.5 billion) in 2015, more than double the amount in 2010, McKinsey & Co. estimates.
Gitanjali Gems is endorsed by almost 25 Bollywood actors including Shah Rukh Khan and Kareena Kapoor and their pictures and television commercials promote the latest in wedding rings and necklaces. The company makes about 50 percent of its sales in India and the rest in the U.S., China, Hong Kong, Japan, Europe and the Middle East, Choksi said.
The company name means “an offering of songs” in Sanskrit and combines the names of Choksi’s sisters, Gita and Anjali. Gitanjali owns the Nakshatra, Gili and D’Damas brands in India, Samuels Jewelers and Rogers Jewelers in the U.S. and the Aston Luxury Group, which has the Stefan Hafner and Giantti brands.
Gitanjali was founded in 1966 by Choksi’s grandfather in the western city of Surat, India’s diamond-cutting and polishing hub. Choksi would hunt for mislaid gems on the floor of his family’s house as a child, getting rewarded with a few rupees by his merchant father. He joined the company straight from school at 17 as a polisher.
“Jewelry is like alcohol,” said Choksi, who likes to unwind at weekends on his yacht, which is docked in front of the Taj Mahal Palace hotel in south Mumbai. “In good times it works because it’s a celebration. In bad times it works because it’s a hedge against inflation; it’s a hedge against bad times.”
Slowing economic expansion in China and India may curb jewelry demand. China’s growth, hurt by a property-market slump and weaker exports, declined to 8.1 percent in the first quarter, the slowest pace in almost three years. The Indian economy probably grew 6.9 percent in the year through March 31, the least since 2009, according to government estimates.
Gold-demand growth in China may stagnate as declining prices deter investors, Xin Zhihong, vice president of Lao Feng Xiang Co., the mainland’s biggest gold-jewelry maker, said in an interview this month. Bullion dropped 18 percent since reaching a record $1,921.15 an ounce in September to $1,582.05 today.
Consumption in India was curbed when jewelers shut their shops for three weeks after the government doubled the tax on imports of gold bars and coins to 4 percent on March 16 and imposed a 1 percent excise duty on non-branded jewelry. While the excise duty was later removed, the stoppage cost the industry about 200 billion rupees ($3.6 billion) in revenue, according to the All India Gems & Jewellery Trade Federation.
Worldwide luxury-sales growth may slow this year before accelerating in 2013 as Europe’s debt crisis hurts demand and China’s economy cools, Bain & Co., a Boston-based adviser to companies on everything from marketing to mergers, said in a report May 7.
Van Cleef & Arpels
Spending on luxury apparel, accessories, watches, jewelry, perfume and other personal items may climb by 6 percent to 7 percent to as much as 203 billion euros ($260 billion), compared with growth of 13 percent in 2011, Bain estimates. Sales will expand 7 percent to 8 percent in 2013 and 8 percent to 10 percent in 2014, the consultant said.
Gitanjali’s sales of $2.52 billion in the 12 months to December are less than Tiffany’s $3.64 billion in the year to January and compare with LVMH’S 23.7 billion euros, data compiled by Bloomberg show. The jewelry unit of Cie. Financiere Richemont SA, which includes Cartier and Van Cleef & Arpels, had sales of 4.59 billion euros in the year to March 31. Gitanjali announced yesterday a 33 percent increase in revenue to 125 billion rupees in the year to March 31.
The Indian jeweler’s market value of $511 million compares with Tiffany’s $7.7 billion and LVMH’s 62.3 billion euros, according to data compiled by Bloomberg. Choksi owns 49.7 percent, or 45.29 million shares. The value of his stake is now about 14.1 billion rupees after the shares declined 23 percent from their highest close in four years on Feb. 22. The chairman raised his holding by almost 25 percent since March 2010, most recently adding 100,000 shares on May 11, Bloomberg data show.
Gitanjali’s sales increased more than fivefold in the past six years since its listing in Mumbai in 2006. Choksi says he is seeking “some very top-end brands” and more stores in China and India. Shares of the company gained 3 percent in Mumbai this year as Tiffany dropped 7.7 percent in New York and Chow Tai Fook fell 27 percent in Hong Kong.
Graff Diamonds, the London jewelry retailer planning a $1 billion Hong Kong initial public offering, will open five new stores in Asia this year. Chow Tai Fook said in March it expects sales of gold rings and bracelets to rise as it opens more than 500 stores in the next four years in Greater China. Tiffany is also seeking to expand its stores, Chief Executive Officer Michael Kowalski said on a conference call in April.
Choksi’s bullish stance on diamonds contrasts with the producers of the gems. BHP Billiton Ltd. (BHP) and London-based Rio Tinto Group, the world’s biggest and third-largest mining companies, said this year they are seeking to sell their assets.
Diamonds are more attractive for investors because they don’t take up much space and demand is outstripping supply, Choksi said. Prices of top-quality gems climbed 22 percent in 2011, the biggest advance since at least 2006, according to the Rapaport Diamond Trade Index. The index calculates the average price for the top 25 best-quality 1-carat diamonds. A carat is equal to a fifth of a gram. Gold rose 10 percent last year.
Global demand for diamonds will increase by an average of 6.4 percent a year to almost 247 million carats by 2020, while output may rise an annual 2.8 percent to 175 million carats, Bain said in a report in December.
OAO Alrosa, the world’s largest diamond mining company by output, increased first-quarter sales by 26 percent to $1.2 billion as demand in India, China and the U.S. expanded, the Russian state-owned miner said April 9. De Beers, the supplier of about a third of the world’s unpolished diamonds, reported a 27 percent increase in sales last year.
Choksi introduced the country to branded jewelry in 1994 by establishing its first jewelry brand, Gili, and has since increased his tally to 70 brands worldwide.
“If you sit on a fast horse, you win the race,” said Martin Rapaport, the chairman of Rapaport Group, which operates the diamond pricing service. “As long as consumer demand continues to flourish in India and the government doesn’t create problems, Choksi will sit on a fast horse.”
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