Kalyan Jewellers : Branded Trust in Jewels.Narayan Gowda, 47, works with the Karnataka Public Works Department and, like millions of Indians, is a big investor in the yellow metal. Every year, he accumulates some gold jewellery. "I have two daughters," he explains. On a recent Friday, he patiently waited outside a Kalyan Jewellers gold jewellery showroom being inaugurated in the upscale Jayanagar area of Bangalore. The ribbon-cutting was being done by Kannada superstar Shivaraj Kumar to draw crowds but Gowda was there for another reason. He had heard that this jewellery chain fixed the entire price of each item transparently. "I did not have to endlessly haggle at billing time on making and wastage charges which made my purchase hassle free," he says. Gowda ended up buying a pair of bangles but a surprise was in store. A week later he received a call from the billionaire founder chairman of the company, TS Kalyanaraman, enquiring about his entire buying experience. Pleasantly taken aback at receiving such personal attention from the top honcho of the company, Gowda intends to be a repeat customer. Kalyanaraman is a short, reticent man, who more often than not likes to speak in monosyllables, sports Armani suits and wears a diamond ring and a chunky gold chain. The call to Gowda was his way of ensuring that every month he talks to at least 10 customers, selected on a random basis, to get first-hand feedback. This degree of attention to detail is one of the reasons why Kalyan Jewellers, a relatively recent entrant to the business, has been able to convert buyers at a faster rate than any of its competitors and thereby tasted big success. The consumers were attracted by their innovative designs, and superior customer service. In addition, Kalyan built a strong position of trust in the minds of the consumer by raising the standards of transparency in what had been a traditionally opaque business. Recently Kalyan launched a advertising campaign that drove home its brand identity. Unlike most other ads in the sector there is no wedding scene or a glamorous display of glitz. The ad shows an elderly teacher(Amitabh Bachchan) visiting his successful student (Nagarjuna) to seek funds for his dilipated school. He spends a day in his students rich home but is hesitant to openly seek a donation. But the student reads the mind of his teacher and realizes the trust and faith that his teacher placed on him. When the teacher gets back to his school he finds that work has already commenced on upgradation due his students silent funding. The ad’s message is loud and clear, the two big-ticket consumption items for any Indian family. the average Indian bought jewellery for investment rather than for adornment. By turning conventional industry wisdom on its head. where customers mostly pay on the weight of the product. Kalyanaraman had more than his fair share of detractors in the industry. He began sourcing jewellery and selling it at his shop with an initial investment of Rs 75 lakh. The new millennium witnessed a definite change in consumer preferences. especially from consumers in the 16 to 25 age group. They threatened and unsuccessfully tried to run him out of business. TEXTILE TO JEWELLERY Till the early 1990s. Confidence in the local jeweller was the hallmark of the gold jewellery trade in India. there was a shift in consumer tastes: women were increasingly opting for fashionable and lightweight jewellery instead of traditional chunky jewellery. the local jeweller catered to the local taste for traditional jewellery. since the late 1990s. a traditional textile seller in Thrissur who primarily sold wedding finery and had a reputation of being a straight dealer. However. There was a rise in demand for lightweight jewellery. Jewellery made of 18-karat gold was not favored as it was considered a poor investment. In the Indian jewellery business. was being goaded by his customers to also offer jewellery. under a single roof. Kalyanaraman had a flourishing textile trade. Kalyan Jewellers can be trusted to fulfill the implicit needs of its customers.much like the student. who regarded jewellery as an accessory and not an investment. . It would have allowed Kalyanaraman's clients to buy both jewellery and clothes. A jeweller or goldsmith in a local area had a fixed and loyal clientele. "Those were tough times. proven purity. Only the loyalty of our early customers helped us. Additionally. He then decided to enter the jewellery business. In most cases it also means compromising on the purity of gold. ambience and other incidental charges." he says. The buyer had implicit faith in his jeweller. Tanishq (1994) and Gitanjali Gems (1986) emerged on the horizon. This was also the time that Kalyanaraman. a business launched by his father in 1950s. It was only in the early 1990s that the jewellery trade slowly started becoming more organised. One of his innovations was putting a price tag on each product clearly indicating all the details such as making and wastage charges along with the final price. By 1993. the seller usually recovers his margin by tacking on other charges such as making and wastage (while creating a piece of jewellery some amount of gold is wasted). Kalyanaraman attracted a loyal set of buyers who were willing to pay for design. A clutch of large pan-India players such as Rajesh Exports (1990). Similarly. Thus. It is probably the reason why the maximum number of jewellery store chains such as Malabar Gold. Each market is unique. Attrition is mostly unheard of in the company. "They have carefully selected and identified the brand with timeless icons who appeal across generations. diamond or silver). However." His younger brother Ramesh. who looks after purchase and finance. "Tanishq has almost three times the number of showrooms as us to have a similar turnover. says employee loyalty has been key to the company's growth. "In eastern parts. the company steadily grew while increasing profits. Executive Director of the company and elder son of the Chairman. outdoes most other parts of the country in its love for jewellery. 39. Amidst such stiff competition." Kalyanaraman admits that the Indian jewellery market differs heavily from state to state and region to region. and traditional jewellery in Kerala and Tamil Nadu. intricate Bengali jewellery is the norm." It also helps that the company spends about two per cent of its revenue on marketing. Chemmanur. Kalyan Jewellers is valued higher than most rivals despite relatively low revenues. A careful and calibrated expansion meant that irrespective of the price fluctuation of the raw material (gold. colour stone-studded jewellery is popular in parts of Andhra. a superstar in his own right is also the son of Kannada movie legend Dr Rajkumar. Shivaraj Kumar. Nagarjuna Akkineni. Prabhu Ganesan and Manju Warrier as brand ambassadors. It has roped in Amitabh Bachchan. Shivaraj Kumar. it was not easy for Kalyan to make a mark. . who also assists his father as Executive Director in charge of Marketing and HR." he says. Rajesh Kalyanaraman. "In our two decade-plus history we have not closed a single showroom we have ever opened. the tiny southern state of India. says they spend about six months studying a market before putting up a showroom. "We treat employees like our extended family. Josco and Alukkas.CALIBRATED EXPANSION Kerala. offer unique designs and own the complete value chain. Aishwarya Rai. We pay above-market wages. have emerged in the state. Marketing consultant Harish Bijoor points out that most of its brand ambassadors are either icons in their regional movie industries or related to them. amongst others. We are able to have greater footfalls and higher conversion rate of buyers because of our attention to detail." Kalyan Jewellers' strategy of a being a national player that tracks local preferences in jewellery products seems to have paid off. Kalyanaraman set up his own manufacturing facilities once business started expanding to ensure quality control. 36. He continues to partly source some of his jewellery. Prabhu is the son of Tamil thespian Shivaji Ganesan. "Investing money is a given. since it has made some big-ticket successful investments in India . says its equity is at Rs 1. Warburg in the past has helped portfolio companies access cheap finance. points out Mahadevia. Havells and Amtek Auto. institutionalise best practices and expand globally. Not surprising. There are more than 100 such 'My Kalyan' teams . is healthy.their investment portfolio includes Kotak Mahindra Bank.A large part of jewellery demand comes from Tier-II and Tier-III cities where it is also regarded as a safehaven asset. Kalyan worked with us because of our global expertise in handholding companies when they are experiencing fast growth and helping them make the right decisions. While the Kalyanaraman family is loathe to disclose exactly how much stake they crore net debt capital as business). or its debt-to-equity ratio. Bharti Airtel.they are now trying to push diamond jewellery along with gold. diverting traffic to them. says that what attracted his firm to Kalyan was the company's rapid growth. Each team with four to six members works in surrounding 'catchment areas' to push the brand by taking select pieces and displaying at local events. .900 crore.000 (mainly borrowings for working jewellery is a capital-intensive infusion of external funds. over one." he says. service and support. Kalyan Jewellers has set up 'My Kalyan' teams. They also act as feeders to the main Kalyan showrooms. providing information. the company had Rs 2. After Kalyanaraman So the gearing. at just a little Kalyan Jewellers has scaled up operations over the last few years. its profitability (company says it is on par with Tanishq) and the value system of the promoter family. SKY-HIGH VALUATIONS When Warburg announced its investment it created a stir. Vishal Mahadevia. divested. However. Managing Director of Warburg Pincus India. source talent. Max India. To penetrate these markets. we will act local to meet customer expectations." For now Kalyanaraman and his family are sitting pretty and are not unduly worried. An industry player says "They have done well by mainly focusing on South and West India. including 12 overseas in countries like the UAE. Once they go fully national and even international. Kalyan Jewellers expects to close with revenues of Rs 13. their margins will take a hit. In 2015/16. Kalyan is investing in upgradation of its Design facility in Sharjah and is adding one more design centre in Malaysia. to its existing 89 stores. Perform a SWOT analysis and generate at least 2 strategies for sustaining Kalyans blistering 30% yoy growth in revenues and earnings. which is 30% growth from last year and add 28 showrooms. 1. Competition is fierce and sounds a note of caution. Kuwait. Singapore and Malyasia.000 crore . Let's see how they will tackle those challenges." says Kalyanaraman. In the next three years the company is looking to beef up revenue to Rs 25. Besides expanding its manufacturing facilities in Kerala and Tamil Nadu .Not everyone agrees with the valuation. Explain the key reasons for Kalyan’s success in the Jewellery Industry in India ? 2.000 crore. "Whether national or international. . Ayurvedic products (such as Churnas. and Honey. and Meswak). and Chyawanprash4 and had a significant share of 26% in baby oil in 2007. the company started serving the southern region of the country in 2002.Dabur was a market leader in herbal digestives. Ras Rasaynas. branded honey. Nigeria. 22 billion company (as of 2007). Otherwise. a leading Indian fast moving consumer goods (FMCG) company.Consumer Care Division and Consumer Health Division. which was neglected earlier. Asav Arishtas. Egypt. Organically. They said that the company should focus on a few champion brands. This line of thought was substantiated by the fact that Dabur was not a category leader in any of the consumer products category where it was present. Homemade cooking pastes like ginger. were added to the food business. and Chyawanprash). Fruit Juices (Real). its efforts to sustain so many products and brands would be dissipated. Shampoos (Vatika) . etc. (Dabur).1 Its product range included Toothpastes and Toothpowder (Dabur Red and Lal Dant Manjan). On the inorganic growth front. Medicated Oils. to increase its sales3. the company acquired the Balsara group of companies in 2005.2 The company had adopted a combination of the organic and inorganic routes in fueling its growth. sales. toilet cleaners (Sani Fresh). it had gone on to become a Rs. Some analysts saw this as a cause for concern. mosquito repellants (Odomos). The company had more than 30 brands in its portfolio. tomato puree. It had two major strategic business units . and air freshners (Odonil). For instance. Its products were produced in 13 manufacturing locations in Nepal. . was established in 1884 as a small pharmacy based in Calcutta (now Kolkata). and distribution. and Bangladesh and it products were sold in more than 50 countries. Dubai. Further. the acquisition was expected to result in exploiting economies of scale in marketing. Nature Care Isabgol. it enhanced its product portfolio in the various product categories. Babool. Besides.Dabur's Growth Strategy in India Dabur India Ltd. Since then. The acquired toothpaste business balanced the oral care products portfolio as Dabur's sales came from the northern and the eastern parts of the country while Balsara's were from the southern and the western parts of the country. Digestives (Hajmola). Hair Oils (Vatika). This acquisition gave Dabur new brands in toothpaste (Promise. garlic. Analysts felt that the combined manufacturing facilities were also likely to yield synergistic effects for Dabur. 2 billion. International markets’ contribution to consolidated revenue has risen from 16 per cent in the financial year 2007-08 to 19 per cent in the first half of this year. Fem is a good buy for us because of the synergies we get. has raised a few eyebrows. In FMCG or foods there aren’t many companies that you can acquire. 203 crore.1. They are either very large corporations or very small brands. when it acquired the Balsara range of products. The company intended to double its turnover by focusing on sachets. who was also responsible for Dabur India’s foray into the processed foods business. Burman. Dabur’s recent acquisition of skincare brand Fem and the price it paid for it. Excerpts from an interview with Amit Burman in “The Hindu”.which were being promoted aggressively and consolidated. even if the company's relative market share in those categories is small. the company's focus was to be present in as many categories as possible. The management at Dabur. and how are you going to integrate the products into your business? Fem as an organisation — anytime is a good time. is also the Chairman of Lite Bites Foods — a personal food retail business that’s currently setting up food courts on high streets. Fem makes great sense. Vatika hair oil and Hajmola amongst others. . has met with such reactions in the past too. However. that owns popular brands such as Chyawanprash. soon to be found on highways too. From that point of view. the company's brand Vatika had a market share of just 5% as of 2007 with a turnover of approximately Rs. however. though it had been in existence for 10 years. the company's market share was just 8% against Colgate Palmolive India's nearly 48%. In the shampoos market. turned around the loss-making Balsara within six months of acquiring it. in the toothpaste market. According to Amit Burman. Dabur India. as of 2007. analysts felt that it would not be easy for the company to do so in light of the growing competition from FMCG giants Hindustan Unilever Ltd. as long as they offered a herbal platform. But the FMCG company. Is this a good time to acquire Fem. however. Ltd. Rs. Due to its small market share. Vice-Chairman. analysts believed that Vatika would not be able to negotiate with the big retailers and consequently its profit margins would suffer.For instance. contended that it had two umbrella brands -Dabur and Vatika -. and Procter and Gamble Co. though it had four brands. Analysts were of the opinion that Dabur should discard products whose volumes were not growing fast enough to deliver margins. You have to look at the synergies to decide what’s good or bad. Dabur. Further. and I think Fem will give us the option of being in skincare. Are there any more acquisitions that you are looking to make? Inorganic growth is one of the key strategies for growth that can come both from the domestic as well as international markets. A bulk of the investment would go into the new plant.We don’t have a skincare portfolio. Gulabari or Vatika. according to some people. we can launch under the Fem or Gulabari (Dabur’s rose themed range) brand name. so it’s the personal care that really lends itself. We should be able to package it better. in terms of the purchase cost and the increase in sales that we’ll get from Fem products being distributed through our system which covers more than 10 lakh outlets. again there are very few players. so in skincare we have a two-pronged strategy. some investments are also going into a new office . which we expect to commission over the next 17 months. How does the acquisition affect your own skincare plans? Our plans go on as it is. we’ll get a play in the skincare area. We started off about six -nine months ago. It will take us four-five years to get our returns. then the price we paid for it is justified. In healthcare. depending on where the product lies. Fem is not as much in ayurvedic. Fem has a niche segment and as such it is quite up there today. There is a significant cost saving in terms of distribution margins and retailer margins. Fem also had a small sales representatives’ team and distribution system through which they catered to a lot of beauty parlours. Besides. A2 segment of society too. 200 crore over the next two years. What are the overall plans for Dabur? How much would you be investing? Dabur India plans to invest around Rs. The new range that we are planning is more in the Ayurvedic area. look at the mix and see how we can tweak and improve the product. and you feel you can double the turnover next year and increase profit 75 per cent from Fem. Brands must also be extendable across categories to reap the value benefit. The cost. We will appeal to the SEC A1. was a little high … The question is not what is very high or low. However. Our M&A team is actively looking for targets. but more important. When you do your own numbers. as is Gulabari. into those parlours. while we are scouting. We can leverage that and put our products. But one must look at a strategic fit of the target in order to add value to the company. there are no firm proposals on the table yet. So. In the food area there are not many acquisitions you can do because it’s a very nascent area. The Indian housewife will never buy a packed paneer butter masala! She’d rather make her own stuff. Our shampoos have grown by 36 per cent over last year. We had a little bit of hiccup because of Nepal. which opened two years ago.000 crore. In India. so if you are talking of price cuts that’s not going to happen. A lot of our products are unique to the region. It’s taken a while in India for us. so that we can go to smaller towns. Nigeria. of course. We are looking at going into the drinks segment that’s more to do with leveraging the Dabur distribution system. .block building coming up in Gurgaon and some of the other properties that we have recently acquired in Delhi. has doubled the turnover over last year. if it is packaged they know who has done it and they trust the brand. Our health care division has shown 20 per cent growth over last year. ahead of the industry. We have a hair cream under Vatika brand in the Gulf. List the key strategies followed by Dabur to pursue growth ? Explain the role that acquisitions have played in the overall strategy. to what extent will they help you? Commodity prices in all our products are coming down so we will get a good margin. She. It is the opposite in Western markets. We plan to keep on pushing our hair oil range. Yemen … Egypt use hair oil in big way … these are the geographies we play in. is very important. 400. but if you look at the actual packaged food its only 2-3 per cent of it. a green gel tooth paste under Babool in Africa. How do you see the International business growing? International markets for us have grown by 39 per cent on a year-on-year basis. How have you done in the foods segment? Foods segment has grown about 20 per cent over the last years. which is growing at 20 per cent on a year-on-year basis — our personal care business is a big one for us — and obviously push the tooth paste and shampoo portfolio which are doing well. Commodity prices have come down. reluctantly buys a tomato puree. Bangladesh. people prefer fresh food to packaged food. The entire food processing market is close to Rs. but all that has been ironed out. But we have eroded margins over the last six months. because we have a manufacturing base. which is very promising. and talcum powders and soaps under the Dabur brand in the Middle East and Africa. today. Then there is food and all the Balsara range in home care and now. The herbal OTC healthcare range is something we will like to pursue. Fem. The Middle East. Africa is a very important region for us. 1. We also have a range of shaving creams under Vatika in the Gulf . while we have no men’s range in India. we should have done 30 per cent growth over last year but did not because of the supply problem. . Assess the strategic potential of Fem acquisition.2. Explain why this was a worthy deal.