The Rs 10,000-crore Shree Ganesh Jewellery House Ltd (SGJHL) is set to trim down its exposure to overseas markets to tide over the slowdown in demand and a possible credit risk involved in exports.
A majority of SGJHL’s sales in the overseas markets are non-LC (letters of credit) backed and therefore involves a huge counter party payment risk.
According to Nilesh Parekh, Chairman, SGJHL’s exposure to overseas market was growing very strong and is in fact becoming a cause of worry following the global crisis. Exports account for nearly 80 per cent of its turnover.
“We are a bit worried about it (our exposure in overseas markets). This is because the overseas markets are going through a number of changes. So we want to reduce our exposure,” he told
SGJHL typically extends a three-month credit period on gold jewellery exported. Nearly 100 per cent of its exports are done on a credit basis where the payment is received after the despatch of the consignment.
Though industry insiders confirm that there has been no default in payments, however, there have been instances where customers have sought for a roll over in credit period. A possible credit risk can therefore not be completely ruled out.
Mitigating credit risk
Nearly 70 per cent of SGJHL’s creditors are from West Asia . With a view to mitigate the credit risk, the company has set up a factory in Dubai to cater to the local market on cash basis.
“This way, our Indian entity will have less exposure to overseas markets. The Dubai factory will work on job work basis,” he said.
By setting up a factory in Dubai, the company will be able to scale down the exposure of the Indian entity to that market by 15-20 per cent. The reduced exposure in overseas markets would be offset by increasing the share of domestic sales, he said.
Domestic market, which currently accounts for 20 per cent of total sales, would be scaled up to 25 per cent, Parekh said.
SGJHL plans to enter into a joint venture agreement with an Italian company for retailing branded and fashion related gold jewellery in the Indian market. The JV would be signed in the next two months, he said.
The company already has a JV agreement with Italian company SALP SPA for the manufacture of light weight gold jewellery under the brand Oroitalia.