Shrenuj expanding in India but China retail plans on hold

Nachiket Kelkar
Moneycontrol.com

With the global environment clouded by economic uncertainties, diamond manufacturer and exporter Shrenuj & Co has put its overseas retail expansion plans on hold, while the recent sharp rupee depreciation has hurt its operations back in India.

"Business sentiment is very poor. We don't have any concrete view as to what will happen in this year," Vinod Shetye, CFO told moneycontrol.com.

Usually, the company has guided for around 30% sales annual growth, but this time around it has refrained from giving any guidance for this year. With sales sluggish for most companies, Shetye infact says one shouldn't have much expectations, at least, for first quarter.

"Sales are down for everybody. So expectation should be low for the first quarter of this accounting year," he said.

Shrenuj had reported a 24% rise in consolidated net profit at Rs 70 crore in 2011-12, net sales had risen 28% to Rs 3,151 crore.

For the fourth quarter, its net profit rose just 3% year-on-year, while net sales were up 11%.

Markets like India, Middle East and Far East Asia had supported growth during the 2008 economic downturn following the US sub-prime crisis and the collapse of Lehman Brothers. However, this time around even here business has taken a hit, according to Shetye.

Shrenuj had acquired jewelery retail chain 'Joliesse' based in Hong Kong in 2003. It currently has around 10 outlets there. It had further planned to expand the chain in China. But now that's unlikely to happen anytime soon.

"China (retail) expansion is on hold...We have expanded into supply of diamonds to jewelers there now. They (Chinese retail chains) are too big. One retail chain has 500-1000 shops. We are operating on such a small scale, how can we go and compete with them? And who will fund my expansion in the current scenario," he questions.

Global uncertainties apart, Shetye says there are more pressing issues in the domestic market -- the slide of Rupee and lack of any big bold reforms by the Union Government.

Rupee depreciation should usually spell good news for exporters. However, this time around, with the rupee hitting new lows, banks have begun revaluing dollar loans given to exporters like Shrenuj.

"Its a notion that exporters are benefited due to depreciating rupee. But its not so in our case because 70% are the import contents...95% are my exports. I avail foreign currency finance on my working capital as permissible by RBI. Now bankers are revaluing the foreign currency working capital finance day-to-day basis or month-to-month basis and revaluing all my dollar borrowings in terms of rupees," Shetye said.

Due to this revaluation, exporters are unable to encash export bills with banks, and they use the same to cut the notional excess in the working capital sanctioned.

Everything has not come to a stand still yet though. Shrenuj hopes to add at least one manufacturing factory in India this year. Shetye, however, refused to divulge the possible location of the plant.

Shrenuj has manufacturing facilities at several locations in Mumbai, apart from Johannesburg in South Africa and the country of Botswana.

It will also expand its chain of shop-in-shops under the brand Diti in India.

Diti currently has 183 point of sales, which will go up to 225 by the end of March 2013.

All the outlets will be shop-in-shops in big retailers. Shetye said setting up an independent store would require at least Rs 5-6 crore for each outlet and given the current economic uncertainties, the company has no plans on that front.

Shrenuj shares were up 1.4% at Rs 72 on NSE in morning trade. The stock is up 23% since Dec 30. The wider S&P CNX500 index is up 13% over the same period.

nachiket.kelkar@moneycontrol.com