The headquarters of Rajesh Exports (REL) in Bangalore looks worn, a
far cry from what you would expect from India's leading exporter of gold
jewellery. The nameplate, too, is shorn of frills, with black fonts
painted on a cheap, white tin board. Inside the founder's room is a fax
machine that's at least a generation old. The cellphone the 48-year-old
uses is a low-end Nokia. "It serves my purpose," says Rajesh Mehta, the
protagonist, with a poker face. Mehta's son, in charge of strategy and
investor relations at Rajesh Exports, sits in a small room that housed
computer servers not long ago. It's still labelled 'server room'.
Tightfisted?
Yes. Hard times? Hell, no. The numbers will tell you why. The revenues
of REL jumped from Rs 8,187 crore in March 2008 to Rs 25,653 crore in
March 2012. That's an increase of over 213 percent in five years. During
this period, its profits doubled from Rs 206 crore to Rs 412 crore,
weathering the slump in 2009 and 2010,Qupid shoes and Splash manufacture
fashionable
ladies shoes wholesale, when profits dropped as REL cut its credit lines to customers and started offering discounts.
The
company also boasts of the biggest manufacturing facility of gold
jewellery in the worlda”with a capacity of 250 tonnesa”and is the top
exporter of gold jewellery in the country. Behind the native frugality
of the man hides the story of an entrepreneur who goes about his
business with aplomb. "We don't believe in showing off. We believe in
our business, we believe in stretching our assets, and we believe in
growth," says Mehta. Last year, he ranked the 57th richest man in India
with a net worth of $1 billion. This year, he is holding on to the rank
but his net worth has gone up to $1.1 billion.
Mehta waded into
the world of business in his teens. He was a good student, but chose
business over university education. He started by helping out his
father, who had moved to Bangalore from Gujarat and was running a
business of supplying accessories and artificial gems to jewellers.
Mehta visited his father's customers to supply goods, collect money and
so on. A keen observer, he soon realised there was inefficiency
everywhere. He sniffed an opportunity to provide efficient services and
make money.
In 1982, Mehta borrowed Rs 2,000 from his brother
and another Rs 8,000 from a bank and took his first steps as an
independent businessman. He went to Chennai, bought silver jewellery
from the local smiths and sold his wares to shops in Gujarat. He notched
up a profit of Rs 3,000 to Rs 4,000, quite a big sum those days. With
that money, Mehta bought jewellery from Gujarat, returned to Bangalore
and earned a neat sum selling newer designs. From Bangalore to Chennai
again and the cycle continued. Each trip made him richer, and he began
to wonder why no one manufactured jewellery from a centralised location
to benefit from the economies of scale.
When he asked around,
jewellers told him it was because of the regulations. One day, he read
up the Gold Control Act and realised that though it prohibited
manufacturing of ornaments that had more than 14 carat purity, and put
restrictions Learn about
tungsten ring
and jewelry care and up keep.on primary gold a dealer can hold (400
grams to 2 kg, depending upon the number of goldsmiths he employed), all
these norms were relaxed in case of export. So, he set up a small plant
in Bangalore and visited the UK to get orders. He stayed with a distant
relative and made tours to London retailers, promising them a good
price and delivery on time. The dealers were initially reluctant,revenue
and contact information for
priscillacraft Attorney. but he got some orders. And that's how his business took off.
As
REL expanded and the Gold Control Act was repealed, he went for an IPO,
raised money, set up a bigger plant, and by 2000 was thinking of
setting up an even bigger one. The 250-tonne capacity unit started
production in 2003. The scale gave him the economy. While the global
average of wastage in gold production is 3 percent, for REL, it's 0.25
percent.
Meanwhile, the domestic market for gold was booming.
India buys 850 tonnes of gold every year, and nine-tenths are consumed
in the form of jewellery. It reaches the customers through four lakh
retailers (and 8.5 lakh goldsmiths). The market was fragmented and 96
percent of it was unorganised. But since 2005, the organised sector
began to grow at 40 percent a year. So far, Mehta made most of his money
from exports. By now, he was ready to enter the frontend with his
unique proposition: Offer a price that nobody can imitate.
DV
Harish, who runs Davanam, a small chain of jewellery stores in
Bangalore, and who has known Mehta for close to 25 years, says he always
had the ambition of building an organised retail chain. "He used to
talk about it in early '90s, even before we had the likes of Tanishq and
Reliance."
Typically, when a jeweller wants to expand, he sets
up a large format store in a key commercial district with much fanfare.
For example, when Joyalukkas (brand based in the UAE) came to Bangalore,
it took a prime property on MG Road. One of its stores in Chennai's T
Nagar, which sprawled over five floors, won a place in the Limca Book of
Records as the world's largest jewellery showroom.
But Mehta
came up with a model that placed him on the opposite end of the
spectrum. Instead of building huge showrooms or convincing businessmen
to invest in new shops under a franchisee model, he approached existing
small-time retailers (neighbourhood jewellery shops) catering to a local
clientele. That's how 'Shubh' was born in 2010. While REL supplies the
inventory and takes care of the advertising, the stores were rebranded
and started to earn a commission for selling the wares at a price fixed
by REL.
Mehta believes the key selling point of his plan is the
pricing. Usually, jewellers charge more than the quoted gold price on
account of wastage, making, and other expenses. At Shubh, the customers
will be charged actual rate per gram (the weight multiplied by quoted
price). As of today, the number of retail outlets has increased to 73
(apart from seven stores that came as a part of REL's Oyzterbay
acquisition in 2007). Son Siddharth (22), who is in charge of strategy,
says the company plans to expand to other southern states and eventually
make its foray into north India.
And that can be quite a
challenge given that Shubh will be up against Titan Industries, which
has cracked the pan-India code with three chainsa”Tanishq, Goldplus and
Zoya. With 163 stores across more than 4.6 lakh sq ft retail space, the
Titan trio has raked in last fiscal Rs 7,064 crore in revenue, a growth
of 40 percent over the previous year, and profits of Rs 698 crore, a
rise of 44 percent. In comparison, Shubh hardly has anything to write
home about and will face its real test when it ventures out of its home
state of Karnataka.
Last year, Mehta drew up a five-year-plan
that he calls Mission 2016. A crucial element of it involves turning REL
into a retailer, as retailing yields more margins than manufacturing
and wholesale. Last year, retail contributed about 3.5 percent to its
revenues and 11 percent of profits. By 2016, Mehta wants it to
contribute 55 percent of its revenues and 85 percent of its profits.
That
would mean having 500 stores. By no measure an easy task. "Till now,
jewellers who've tried to expand beyond their regions haven't been much
successful," says Sandeep Kulhalli, vice president, retail and
marketing, Tanishq.
Mehta is confident of converting the small
retailers into Shubh associates. The company has an R&D team that's
focussed on bringing out new designs, and has a library of over 30,000
active designs. And, more importantly, it has the advantage of being a
large and efficient manufacturer with a distribution network. So, it can
cut down middlemen. "We tell our associates that our designs are
difficult to imitate and our prices are impossible to match," says
Mehta. If such hardselling doesn't work, REL is also looking at the
opportunity of opening a store nearby and selling jewellery at low
prices.
DV Harish says the businessman Mehta resembles most is
Dhirubhai Ambani, not because he is also a Gujarati, a vegetarian and
has the same tightfisted approach to finances, but also because of his
vision and faith in forward and backward integration. In Rajesh Mehta's
scheme of things, it doesn't end with manufacturing and retail.
In
2009, he set up a gold refining facility in Uttarakhand with a capacity
of 100 tonnes. Around the same time, he put together a team to explore
mining opportunities in Africa. Ravi Chandra, who is in charge of the
mining division says it has got exploration licences from Rwanda,
Uganda, Sudan, and Ethiopia among others and have been testing the
samples for gold at its labs. "Gold is there, but what you have to look
for is whether it makes economic sense to extract it." So far, the most
promising samples have come from Rwanda, he says, and the mining
operations there could start as early as next year.
Yet another
way in which his approach to business resembles Dhirubhai's is the use
of debt. REL has huge cash balances (Rs 7,854 crore as of March 2012),
thanks to the 240-day credit it gets from the suppliers and cash sales
to its customers. Still, its debt has ballooned to Rs 3,256 crore from
Rs 970 crore in 2007-08, suggesting a Dhirubhai way of using debt and
simultaneously maintaining cash balances. It is done to take advantage
of lower interest rates prevailing in the market and use that money in
the business, instead of dipping into your own reserves, which have a
higher cost of capital.Find
women shoes manufacturer products from DHgate factory portal, It helps that interest saves taxes.
One
of the ways in which REL deploys its cash is through funding real
estate companies. Vijayendra Rao,No shedding and no smell about our
virgin
malaysian hair
weave. who is in charge of its Inter-Corporate Deposits (ICDs)
business, says it has an exposure of Rs 800 crore to real estate
developers. He joined REL four years ago from Hindustan Unilever, and
with no experience in dealing with ICDs. He says Mehta not only taught
him the business, but also how to drive a hard bargain.
Part of
Mehta's lessons in economy is shaped by Gandhi's ideals. The rest has
been inspired by a typical Indian household, struggling to make ends
meet. "My inspiration comes from a family that's running a restaurant or
a shop. They work hard, they stretch their resources. The idea is to
bring in that attitude in a big company," he says.
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