Monday saw reports of another large private equity deal in India. The US-based private equity company, Warburg Pincus, is thought to buyout a significant minority stake in an Indian jewellery company, Kalyan Jewellers.
Kalyan Jewellers were reportedly talking with other private equity companies, although it is unknown which companies were involved. The reports in March indicated a possible deal could be anything from $200 to $250 million. Neither party commented on the deal other than by releasing a press statement.
According to sources, Kalyan Jewellers, which is based in Kerala, plans to use the funds to launch into new markets and enhance its global presence. The Hindu reported that the company aims for a “two-pronged approach in its distribution and product strategy”.
Domestically, the company hopes to open more exclusive outlets in new regions across India and strengthen its presence in the country. But Kalyan Jewellers is also hoping to increase its global stake, especially in lucrative markets for luxury products such as in the Middle East and Southeast Asia.
The company currently has its presence in all the major markets in South of India from Maharashtra to Punjab. It also has a small presence in United Arab Emirates. In a statement, T. S. Kalyanaraman, the chairman and MD of Kalyan Jewellers, said, “We are looking forward to working with Warburg Pincus as we continue to build our foundation and move onto our next phase of growth”.
For Warburg Pincus, the US-based private equity firm, the investment is first in jewellery manufacturing, even though the company had an unsuccessful venture in the gem and jewellery-exporting sector a few years back. According to VC Circle, the company exited its five year commitment in Vaibhav Gems in 2011, with an over 90% loss. It was one of the biggest loss-making private equity exits in India.
The current deal is one of its biggest investments. Managing director and co-head India at Warburg Pincus, Vishal Mahadevia told in a statement, “We are excited to partner with the team at Kalyan Jewellers as they continue to grow the business going forward”.
Luxury jewellery is expected to grow exponentially in the coming years in India. This is because the country is seeing a huge growth of the middle class. India is also the largest consumer of gold, which is used for both religious and social traditions and the price is often not something Indians consider when they need gold for these functions. Wall Street Journal noted that, “parents are under social pressure to deck their wards with gold jewelry, even borrowing to buy gold” for their children’s weddings.
This is another sign of strengthened private equity activity in India. According to Reuters, different private equity funds have invested $4.6 billion in the country so far this year. In addition, much of the private equity is going towards consumer-related investments. Around fifth of total private equity has gone towards this sector. The Warburg buyout is also the biggest private equity investments to the jewellery section, as well as the largest deal in the Kerala district.