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 ads message is loud and clear,

much like the student, Kalyan Jewellers can be trusted to fulfill the implicit needs of its
customers.

TEXTILE TO JEWELLERY
Till the early 1990s, the average Indian bought jewellery for investment rather than for
adornment. Jewellery made of 18-karat gold was not favored as it was considered a poor
investment. Confidence in the local jeweller was the hallmark of the gold jewellery trade in
India. A jeweller or goldsmith in a local area had a fixed and loyal clientele. The buyer had
implicit faith in his jeweller. Additionally, the local jeweller catered to the local taste for
traditional jewellery.
However, since the late 1990s, there was a shift in consumer tastes: women were increasingly
opting for fashionable and lightweight jewellery instead of traditional chunky jewellery. There
was a rise in demand for lightweight jewellery, especially from consumers in the 16 to 25 age
group, who regarded jewellery as an accessory and not an investment. The new millennium
witnessed a definite change in consumer preferences.
It was only in the early 1990s that the jewellery trade slowly started becoming more organised. A
clutch of large pan-India players such as Rajesh Exports (1990), Tanishq (1994) and Gitanjali
Gems (1986) emerged on the horizon.
This was also the time that Kalyanaraman, a traditional textile seller in Thrissur who primarily
sold wedding finery and had a reputation of being a straight dealer, was being goaded by his
customers to also offer jewellery. It would have allowed Kalyanaraman's clients to buy both
jewellery and clothes, the two big-ticket consumption items for any Indian family, under a single
roof.
By 1993, Kalyanaraman had a flourishing textile trade, a business launched by his father in
1950s. He then decided to enter the jewellery business. He began sourcing jewellery and selling
it at his shop with an initial investment of Rs 75 lakh. 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. In the Indian jewellery business, where customers mostly pay on the weight
of the product, 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). In most cases it
also means compromising on the purity of gold.
By turning conventional industry wisdom on its head, Kalyanaraman attracted a loyal set of
buyers who were willing to pay for design, proven purity, ambience and other incidental charges.
Kalyanaraman had more than his fair share of detractors in the industry. They threatened and
unsuccessfully tried to run him out of business. "Those were tough times. Only the loyalty of our
early customers helped us," he says.

CALIBRATED EXPANSION
Kerala, the tiny southern state of India, outdoes most other parts of the country in its love for
jewellery. It is probably the reason why the maximum number of jewellery store chains such as
Malabar Gold, Chemmanur, Josco and Alukkas, amongst others, have emerged in the state.
Amidst such stiff competition, it was not easy for Kalyan to make a mark. However,
Kalyanaraman set up his own manufacturing facilities once business started expanding to ensure
quality control, offer unique designs and own the complete value chain. He continues to partly
source some of his jewellery.
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, diamond or silver), the company steadily grew while increasing profits. Rajesh
Kalyanaraman, 39, Executive Director of the company and elder son of the Chairman, who looks
after purchase and finance, says they spend about six months studying a market before putting up
a showroom. "Tanishq has almost three times the number of showrooms as us to have a similar
turnover. We are able to have greater footfalls and higher conversion rate of buyers because of
our attention to detail," he says. "In our two decade-plus history we have not closed a single
showroom we have ever opened."
His younger brother Ramesh, 36, who also assists his father as Executive Director in charge of
Marketing and HR, says employee loyalty has been key to the company's growth. "We treat
employees like our extended family. We pay above-market wages. Attrition is mostly unheard of
in the company."
It also helps that the company spends about two per cent of its revenue on marketing. It has
roped in Amitabh Bachchan, Aishwarya Rai, Shivaraj Kumar, Nagarjuna Akkineni, Prabhu
Ganesan and Manju Warrier as brand ambassadors.
Marketing consultant Harish Bijoor points out that most of its brand ambassadors are either icons
in their regional movie industries or related to them. Thus, Shivaraj Kumar, a superstar in his
own right is also the son of Kannada movie legend Dr Rajkumar. Similarly, Prabhu is the son of
Tamil thespian Shivaji Ganesan. "They have carefully selected and identified the brand with
timeless icons who appeal across generations."
Kalyanaraman admits that the Indian jewellery market differs heavily from state to state and
region to region. "In eastern parts, intricate Bengali jewellery is the norm, colour stone-studded
jewellery is popular in parts of Andhra, and traditional jewellery in Kerala and Tamil Nadu. Each
market is unique." Kalyan Jewellers' strategy of a being a national player that tracks local
preferences in jewellery products seems to have paid off.

A large part of jewellery demand comes from Tier-II

and Tier-III cities where it is also regarded as a safehaven asset. To penetrate these markets, Kalyan
Jewellers has set up 'My Kalyan' teams. 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, providing
information, service and support. They also act as
feeders to the main Kalyan showrooms, diverting
traffic to them. There are more than 100 such 'My
Kalyan' teams - they are now trying to push diamond
jewellery along with gold.
SKY-HIGH VALUATIONS
When Warburg announced its investment it created a
stir. Not surprising, since it has made some big-ticket
successful investments in India - their investment
portfolio includes Kotak Mahindra Bank, Bharti
Airtel, Max India, Havells and Amtek Auto.

divested, the company had Rs 2,000

(mainly borrowings for working
jewellery is a capital-intensive
infusion of external funds,
says its equity is at Rs 1,900 crore.
or its debt-to-equity ratio, is healthy,
over one.

While the
Kalyanaraman
family is loathe
to disclose
exactly how
much stake they
crore net debt
capital as
business). After
Kalyanaraman
So the gearing,
at just a little

Kalyan Jewellers has scaled up

operations over
the last few years.
Vishal Mahadevia, Managing
Director of
Warburg Pincus India, says that what
attracted his firm
to Kalyan was the company's rapid
growth, its
profitability (company says it is on
par with Tanishq)
and the value system of the promoter family. "Investing money is a given. However, 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," he says. Warburg in the
past has helped portfolio companies access cheap finance, source talent, institutionalise best
practices and expand globally, points out Mahadevia.

Not everyone agrees with the valuation. Competition is fierce and sounds a note of caution. An
industry player says "They have done well by mainly focusing on South and West India. Once
they go fully national and even international, their margins will take a hit. Let's see how they will
tackle those challenges."
For now Kalyanaraman and his family are sitting pretty and are not unduly worried. In 2015/16,
Kalyan Jewellers expects to close with revenues of Rs 13,000 crore , which is 30% growth from
last year and add 28 showrooms, including 12 overseas in countries like the UAE, Kuwait,
Singapore and Malyasia, to its existing 89 stores. Besides expanding its manufacturing facilities
in Kerala and Tamil Nadu , Kalyan is investing in upgradation of its Design facility in Sharjah
and is adding one more design centre in Malaysia. In the next three years the company is looking
to beef up revenue to Rs 25,000 crore. "Whether national or international, we will act local to
meet customer expectations," says Kalyanaraman.

1. Explain the key reasons for Kalyans success in the Jewellery Industry in
India ?
2. Perform a SWOT analysis and generate at least 2 strategies for sustaining
Kalyans blistering 30% yoy growth in revenues and earnings.

Dabur's Growth Strategy in India

Dabur India Ltd. (Dabur), a leading Indian fast moving consumer goods (FMCG)
company, was established in 1884 as a small pharmacy based in Calcutta (now
Kolkata). Since then, it had gone on to become a Rs. 22 billion company (as of
2007).1 Its product range included Toothpastes and Toothpowder (Dabur Red and
Lal Dant Manjan), Hair Oils (Vatika), Shampoos (Vatika) , Digestives (Hajmola), Fruit
Juices (Real), Nature Care Isabgol, Medicated Oils, Ayurvedic products (such as
Churnas, Asav Arishtas, Ras Rasaynas, and Chyawanprash), and Honey.
It had two major strategic business units - Consumer Care Division and Consumer
Health Division. Its products were produced in 13 manufacturing locations in Nepal,
Nigeria, Egypt, Dubai, and Bangladesh and it products were sold in more than 50
countries.2
The company had adopted a combination of the organic and inorganic routes in
fueling its growth. Organically, the company started serving the southern region of
the country in 2002, which was neglected earlier, to increase its sales3.
Further, it enhanced its product portfolio in the various product categories. For
instance, Homemade cooking pastes like ginger, garlic, tomato puree, etc. were
added to the food business.
On the inorganic growth front, the company acquired the Balsara group of
companies in 2005. This acquisition gave Dabur new brands in toothpaste (Promise,
Babool, and Meswak), mosquito repellants (Odomos), toilet cleaners (Sani Fresh),
and air freshners (Odonil). 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.
Analysts felt that the combined manufacturing facilities were also likely to yield
synergistic effects for Dabur. Besides, the acquisition was expected to result in
exploiting economies of scale in marketing, sales, and distribution.Dabur was a
market leader in herbal digestives, branded honey, and Chyawanprash4 and had a
significant share of 26% in baby oil in 2007. The company had more than 30 brands
in its portfolio. Some analysts saw this as a cause for concern.
They said that the company should focus on a few champion brands. Otherwise, its
efforts to sustain so many products and brands would be dissipated. 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.

For instance, in the toothpaste market, as of 2007, the company's market share was
just 8% against Colgate Palmolive India's nearly 48%, 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. In the shampoos market, the
company's brand Vatika had a market share of just 5% as of 2007 with a turnover of
approximately Rs.1.2 billion, though it had been in existence for 10 years. The
company intended to double its turnover by focusing on sachets.
However, 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. and Procter and
Gamble Co. Ltd. Due to its small market share, analysts believed that Vatika would
not be able to negotiate with the big retailers and consequently its profit margins
would suffer.
The management at Dabur, however, contended that it had two umbrella brands -Dabur and Vatika -- which were being promoted aggressively and consolidated.
Further, the company's focus was to be present in as many categories as possible,
as long as they offered a herbal platform, even if the company's relative market
share in those categories is small.
Daburs recent acquisition of skincare brand Fem and the price it paid for it, Rs. 203
crore, has raised a few eyebrows. But the FMCG company, that owns popular brands
such as Chyawanprash, Vatika hair oil and Hajmola amongst others, has met with
such reactions in the past too, when it acquired the Balsara range of products.
Dabur, however, turned around the loss-making Balsara within six months of
acquiring it. According to Amit Burman, Vice-Chairman, Dabur India, Fem makes
great sense. 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. Burman, who was also responsible for Dabur Indias foray into the processed
foods business, is also the Chairman of Lite Bites Foods a personal food retail
business thats currently setting up food courts on high streets, soon to be found on
highways too.
Excerpts from an interview with Amit Burman in The Hindu.
Is this a good time to acquire Fem, and how are you going to integrate the
products into your business?
Fem as an organisation anytime is a good time. You have to look at the synergies
to decide whats good or bad. In FMCG or foods there arent many companies that
you can acquire. They are either very large corporations or very small brands. From
that point of view, Fem is a good buy for us because of the synergies we get.

We dont have a skincare portfolio, and I think Fem will give us the option of being in
skincare. So, we can launch under the Fem or Gulabari (Daburs rose themed range)
brand name, depending on where the product lies.
The cost, according to some people, was a little high
The question is not what is very high or low. When you do your own numbers, and
you feel you can double the turnover next year and increase profit 75 per cent from
Fem, then the price we paid for it is justified. There is a significant cost saving in
terms of distribution margins and retailer margins, in terms of the purchase cost
and the increase in sales that well get from Fem products being distributed through
our system which covers more than 10 lakh outlets. It will take us four-five years to
get our returns, but more important, well get a play in the skincare area.
Fem also had a small sales representatives team and distribution system through
which they catered to a lot of beauty parlours. We can leverage that and put our
products, Gulabari or Vatika, into those parlours.

How does the acquisition affect your own skincare plans?

Our plans go on as it is. The new range that we are planning is more in the
Ayurvedic area, as is Gulabari. Fem is not as much in ayurvedic, so in skincare we
have a two-pronged strategy.
Fem has a niche segment and as such it is quite up there today. We should be able
to package it better, look at the mix and see how we can tweak and improve the
product. We will appeal to the SEC A1, A2 segment of society too.
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. But one must look at a strategic fit of
the target in order to add value to the company. Brands must also be extendable
across categories to reap the value benefit.
In the food area there are not many acquisitions you can do because its a very
nascent area. In healthcare, again there are very few players, so its the personal
care that really lends itself. Our M&A team is actively looking for targets. We started
off about six -nine months ago. However, while we are scouting, there are no firm
proposals on the table yet.
What are the overall plans for Dabur? How much would you be investing?
Dabur India plans to invest around Rs. 200 crore over the next two years. A bulk of
the investment would go into the new plant, which we expect to commission over
the next 17 months. Besides, some investments are also going into a new office

block building coming up in Gurgaon and some of the other properties that we have
recently acquired in Delhi.
We plan to keep on pushing our hair oil range, 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. Our shampoos
have grown by 36 per cent over last year, ahead of the industry. The herbal OTC
healthcare range is something we will like to pursue. Our health care division has
shown 20 per cent growth over last year, which is very promising. Then there is food
and all the Balsara range in home care and now, of course, Fem.
How have you done in the foods segment?
Foods segment has grown about 20 per cent over the last years. We had a little bit
of hiccup because of Nepal, we should have done 30 per cent growth over last year
but did not because of the supply problem, but all that has been ironed out. We are
looking at going into the drinks segment thats more to do with leveraging the
Dabur distribution system, so that we can go to smaller towns.
The entire food processing market is close to Rs. 400,000 crore, but if you look at
the actual packaged food its only 2-3 per cent of it. In India, people prefer fresh food
to packaged food. It is the opposite in Western markets; if it is packaged they know
who has done it and they trust the brand. The Indian housewife will never buy a
packed paneer butter masala! Shed rather make her own stuff. She, today,
reluctantly buys a tomato puree. Its taken a while in India for us.
How do you see the International business growing?
International markets for us have grown by 39 per cent on a year-on-year basis.
Africa is a very important region for us. The Middle East, because we have a
manufacturing base, is very important. Bangladesh, which opened two years ago,
has doubled the turnover over last year. Nigeria, Yemen Egypt use hair oil in big
way these are the geographies we play in. A lot of our products are unique to the
region. We have a hair cream under Vatika brand in the Gulf, a green gel tooth paste
under Babool in Africa, and talcum powders and soaps under the Dabur brand in the
Middle East and Africa. We also have a range of shaving creams under Vatika in the
Gulf , while we have no mens range in India.
Commodity prices have come down, to what extent will they help you?
Commodity prices in all our products are coming down so we will get a good margin.
But we have eroded margins over the last six months, so if you are talking of price
cuts thats not going to happen.
1. List the key strategies followed by Dabur to pursue growth ? Explain the role
that acquisitions have played in the overall strategy.

2. Assess the strategic potential of Fem acquisition. Explain why this was a
worthy deal.