The Nirav Modi scam has hit the gems and jewellery segment as bankers have become reluctant to give funds to the sector and all Letter of undertakings (LOUs) have been put on hold. In an interview to CNBC-TV18, S Subramaniam, CFO of Titan Company and Ajay Sahai, Director General & CEO of Federation of Indian Export Organisations (FIEO) spoke at length about what the sector is looking at going forward.
Below is the verbatim transcript of S Subramaniam's interview:
Sonia: The immediate fallout of the Nirva Modi scam on the entire sector could be that organized firms like yourself could benefit on one hand and we can also see quicker consolidation because smaller companies will find it very tough to get working capital, to get loans etc. What are your thoughts on how the dynamics of the industry could change?
A: We expect greater level of scrutiny on all lending to the jewellery sector. I won’t be surprise if that happens. Need for more collateral is something which may also be happening at this point and on top of that you also have the new regulation which is coming up which is the banning of unregulated deposit schemes which will take out a lot of working capital which a lot of small jewellers who have been taking deposits from public without any regulatory oversight also may have to stop. So a squeeze of working capital is therefore quite likely in the industry and it might force quite a few of the players to go out of the industry. So consolidation might happen by shrinking number of jewellers. It is quite likely, yes.
Latha: Can you tell us what the current situation is. Are you expecting funds are going to tighten or have you already seen it? It is almost a month now since the scam broke, what are the signs now?
A: We hear about this happening, we heard about tightening happening already but this does tend to take a little time because things are yet to settle down in a way, a lot of investigations are happening across all banks, so I would assume that most banks would be busy in trying to figure that out first but I wouldn’t be surprise if in the next month-two months a lot of scrutiny happens on existing bank lending to the jewellery sector and to some extent I would also think that the focus can be largely on exports because of what we have seen happen here. So it is going to be a combination of all of that. I won’t be surprise if there is new regulation as well in this account. We have seen it happen repeatedly whenever there have been large scams. So I would expect all this to happen in the next few months. I cannot say it is happening right now. It may be happening in some cases but not very sure.
Anuj: As you said you are not impacted but do you get positively impacted because the rest of the sector is in problem especially the unorganised one and smaller companies, so in that case do you get incremental market share in that?
A: It’s too early to talk about that but if you see what has happened over the last six-eight quarters we have been gaining market share and that is a result of a lot of things that have happened on the macrocosmic condition, the shift towards more regulated compliant economy, the war against black money, all of that has definitely helped us. Along with things that we have done ourselves. So that shift is been going on for some time. The immediate impact of what we are seeing right now will be felt only in the next quarter and beyond. I do not see it right now because it is too early.
Sonia: The other thing I want to discuss with you is demand because there is now lingering skepticism on the purity or the value of diamond itself after this scam broke out. Do you see a shift away from diamond jewellery and studded jewellery and what kind of impact do you think that could have on businesses like yours in the near term?
A: It’s very-very early days because these have just broken out in the last few weeks. So I do not see an impact right now. My own anecdotal information that I have got, some people do not even know that there was an issue with this. So I am not very sure there will be an impact right now but I won’t be surprise if it is going to happen over a period of time and that would gravitate people towards more trusted brands and that is what I see as a trend.
Sonia: In terms of numbers, do you have any ballpark estimates of how much the overall organised industry could gain from the closure of all the Gitanjali gems store. I was going through a recent report. It said that 14 percent share of the overall market pie is now up for grab because of the closure of Gitanjali gems stores but what is your assessment?
A: I do not know where this 14 percent number has come from because Gitanjali did a lot of exports. I do not think their brands did significant sales in India. I am talking about the domestic jewellery market. I am not talking of export, diamonds and so on. Therefore, in that context I do not think they were very big at all. So I am not sure there is a big shift there.
For entire interview of Ajay Sahai of FIEO, watch accompanying video.
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