How Rajesh Mehta Found His Midas Touch During Recession
Image: Mallikarjun Katakol for Forbes India
Name: Rajesh Mehta
Profile: Chairman, Rajesh Exports
Rank in the Rich List: 57
Net Worth: $1.1 bln
The Big Hairy Challenge Faced in the Last One Year Expanding retail footprint. To finetune a model to help grow revenues from 3.5 percent in 2011 to 55 percent in 2016
The Way Forward Wants to expand retail outlets to 500 by 2015 across India from the current 80; expects to start gold mining in Rwanda next year
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, 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 world—with a capacity of 250 tonnes—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 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, 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.