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Table of Contents

1. Executive Summary ................................................................................................................................................... 3

2. The Second Polygon Business Confidence Survey: Objective ................................................................................... 4

3. Methodology ............................................................................................................................................................. 5

4. Overview ................................................................................................................................................................... 6

5. The Survey Results .................................................................................................................................................... 7

5.1 Business Confidence Index ................................................................................................................................ 7

Overall BCI ................................................................................................................................................................. 7

BCI for Jewelers ......................................................................................................................................................... 8

BCI for Diamond Co’s ................................................................................................................................................ 8

5.2 Current Business Index ..................................................................................................................................... 9

Overall CBI ................................................................................................................................................................. 9

CBI for Jewelers ......................................................................................................................................................... 9

CBI for Diamond Companies ................................................................................................................................... 10

5.3 Business Margin Expectation Index ................................................................................................................ 11

Overall BMEI............................................................................................................................................................ 11

BMEI for Jewelers .................................................................................................................................................... 12

BMEI for Diamond Co’s ........................................................................................................................................... 12

5.4 Strategies for Growth ...................................................................................................................................... 13

5.5 Constraints for Growth ................................................................................................................................... 13

5.6 Export Destinations ......................................................................................................................................... 14

5.7 Views on Online Jewelry Retailing .................................................................................................................. 14

5.8 Dubai v/s India as Diamond Trading hub ........................................................................................................ 14

6. Conclusion ............................................................................................................................................................... 15

Annexure 1 – Statistical Tables ............................................................................................................................... 16

Annexure 2 ‐ Polygon Company Profile .................................................................................................................. 17

Membership ........................................................................................................................................................ 17

Annexure 3 – Business Confidence Survey Questionnaire For JAN – MAR 2008 Quarter ...................................... 18


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1. EXECUTIVE SUMMARY The Second Business Confidence survey revealed that the Indian Gems and Jewelry Industry had a disappointing Oct‐Dec quarter. Record level gold prices deterred Indian consumers from purchasing gold jewelry during the festive season, the sliding dollar adversely affected diamond companies. The Current Business Index (CBI) for the Oct‐Dec quarter stood at 63.3 as opposed to a CBI of 82.1 in the preceding quarter.

The Polygon Current Business Index assesses the Industry’s views on performance in the last quarter, Oct‐Dec’07 with respect to their performance in the same quarter of the previous year. Only 51% of the respondents performed better in the Oct‐Dec’ 07 quarter as compared to the same quarter in the previous year.

Valentine’s Day and the Indian wedding season will be the key drivers of gems and jewelry sales during the first quarter of 2008. Diamond jewelry enjoys unprecedented demand during Valentine’s Day. On the other hand, as consumers get accustomed to higher gold prices, gold jewelry might witness a boost because of the wedding season.

The Industry is optimistic about business prospects in the next quarter and it reflected in a healthier Business Confidence Index. The Business Confidence Index (BCI) for Jan‐Mar’08 stands at 75.5. However, it was substantially lower than the BCI of the preceding quarter. The Business Confidence Index for Oct‐Dec ’07 stood at 94.64 as the industry was excited about business prospects in the festive season.

The Polygon Business Confidence Index is a barometer that senses the pulse of the Industry’s Business Prospects in the current Jan‐Mar’08 quarter. About 65.3% of the respondents indicated that they expect to perform better in Jan‐Mar’08 than the same quarter in the previous year.

Gross operating margins for Jewelers and Diamond Companies will be under pressure in the Jan‐Mar’08 quarter. Gold prices are expected to remain strong through 2008. Uncertainty over supply of diamond rough will expose Indian companies to price volatility of the open market.

The Business Margin Expectation Index (BMEI) for Jan‐Mar’08 stands at 46.93. The Polygon Margin Expectation is a measure of expected operational margins in the Jan‐Mar’08 quarter. About 59% of the respondents felt that their input prices would be higher than the previous quarter.

Uncertainty over the US economy will alter the export landscape of diamonds and jewelry. Companies will look at emerging markets for export growth. About 29% of the Jewelers will export their jewelry to the Middle East. Asia, led by China has emerged as the most popular export destination for Diamond Companies.

Online jewelry shopping is gaining popularity amongst Indian consumers and sellers. An increasing number of companies are looking at selling online to reach a wider target audience. However, Jewelers are still concerned over malpractices prevalent in online jewelry shopping, like copying of designs.

The Indian G&J industry believes that Dubai with its remarkable infrastructure would emerge as a favored diamond hub for the Middle East Markets. However, it will not threaten India, the country that is home to a number of big diamond companies.


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2. THE SECOND POLYGON BUSINESS CONFIDENCE SURVEY: OBJECTIVE Polygon has successfully concluded its Second Business Confidence Survey to assess the business expectation of Diamond Merchants and Jewelers for first quarter of 2008, Jan‐Mar. The survey has also assessed their performance in the preceding quarter ended Dec’07. Three basic indices have emerged from this survey to measure the business sentiment of the industry.

Polygon Business Confidence Index (BCI) Polygon Current Business Index (CBI) Polygon Business Margin Expectation Index (BMEI)

The Polygon Business Confidence Index is a barometer that senses the pulse of the Industry’s Business Prospects in the current Jan‐Mar’08 quarter.

The Polygon Current Business Index assesses the Industry’s views on performance in the last quarter, Oct‐Dec’07 with respect to their performance in the same quarter of the previous year.

Polygon Margin Expectation is a measure of expected operational margins in the Jan‐Mar’08 quarter.

The indices are based on the perceptions of CEOs and Executives of Diamond and Jewelry companies and will be useful in devising corporate strategy and business planning. These indices bring forth the industry’s perception on future businesses and aspirations drawn from the current business status.

Polygon continues to bring up constraints to businesses that are external to the industry. The economic hurdles listed in this survey were International and local Demand, Availability of skilled labor and raw materials.

Spectrum of Companies: ‐ Companies spanning from small Jewelry stores to listed companies, suppliers and retailers across different cities like Mumbai, Delhi, Pune, Jaipur and Chennai participated in the survey.

According to Firm Size Companies were further categorized according to size based on estimated turnover:‐ Small ‐up to 100 crore Medium ‐100 to 400 crore Large ‐above 400 crore


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3. METHODOLOGY The data for the construction of Polygon Gems and Jewelry Business Confidence Index is derived from interviews that were conducted based on the questionnaire during the IIJS 2007 exhibition, Mumbai. The survey questionnaire comprised 10 questions which are variables used as index components. The Questionnaire is appended at the end of this report.

The respondents were asked to choose one of the 3 alternatives: Better, Same as today, Worse and in some cases the alternatives were: Higher, Same as today, Lower. The respondents are also asked the prospective product and pricing strategies and regions / countries, which they perceive would provide growth to their company.

These questions focus on the forecasting of business and economic conditions over the period of next three months and current status compared to those in the previous quarter.

The sampled firms comprised of a few listed companies but predominantly privately held companies. The respondents were mostly the business leaders, business owners themselves, or corporate executives who understood the purpose of the questionnaire. These representative firms were either only into one business i.e. diamond or jewelry or both. In the assessment process of the responses received, the qualitative data (business views) is converted to quantitative data (numbers and points) before the sentiment index can be constructed through the application of an indexing approach called diffusion index.

THE INDEX FINALLY DERIVED WILL BE AN INDICATOR OF BUSINESS AND ECONOMIC SENTIMENT. Highest index is 100 while the lowest is 0. Reading of index is as follows: 1. Index of 50 implies business sentiment remains stable. 2. Index above 50 implies business sentiment has improved. 3. Index below 50 implies business sentiment has worsened.

Computation of index comprises the following procedures: 1. Converting qualitative data into Quantitative data by scoring the responses received within the criteria below:

The score of 1 are assigned to the answers that show positive sentiment The score of 0.5 is given to “no significant change” answer. The score of 0 are assigned to “Worse or lower” responses.

2. Adding all the scores obtained the dividing the total score by the number of respondents and multiplying the final figure by 100.

3. There are three types of indices constructed: The Current Business Index ‐ the index derived from the current performance surveyed data

(CBI = Cumulative Score on Current Performance/No. of Companies * 100) The Business Confidence Index‐ the index derived from the data surveyed one three months in advance

(BCI = Cumulative Score on Expected Performance/No. of Companies * 100) The Business Margin Index – the index derived from the data surveyed on product and raw material pricing

(BMEI = Average [Final Marketing Price and Input Price]) (Final Marketing Price = Cumulative Score on Pricing Products/No. of Companies * 100) (Input Price = Cumulative Score on Suppliers Price/No. of Companies *100)

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ANNEXURE 1 – STATISTICAL TABLES Table 1 :‐ Polygon G&J Industry Indices Overall Jewelers Diamond Co's

Qtr Ended CBI BCI BMEI CBI BCI BMEI CBI BCI BMEI Dec‐07 82.10 94.60 42.40 77.30 97.70 77.30 90.00Mar‐08 63.30 75.50 46.90 63.20 75.60 48.70 63.20 80.50 47.20

Table 2: Respondents Perception (% Distribution) Business Confidence Index Dec‐07 Mar‐08

Better 92.00 65.00Same As Today 6.00 21.00Worse 2.00 14.00Current Business Index Better 72.00 51.00Same As Today 26.00 24.50Worse 2.00 24.50Business Margin Expectation Index Higher 46.00 51.00Same As Today 48.00 43.00Lower 6.00 6.00

Table 3: Respondents Perception on Growth Strategies Jewelers Qtr Ended Develop New

Designs Better Pricing Capabilities

Enter New Markets Expand Current Market

Launch a New Brand

Dec‐07 43.00 47.00 63.00 15.00 24.00Mar‐08 61.50 30.80 23.10 20.50 20.50

Table 4: Respondents Perception on Growth Strategies Diamond Co's Qtr Ended Enter New Markets Better Pricing Capabilities Enter new Segments in Diamonds Diversify to Jewelry

Dec‐07 39.00 55.00 24.00 18.00Mar‐08 55.50 22.20 22.20 11.10

Table 5: Distribution by Constraints to Growth Qtr Ended Availability of Raw Material Availability of Skilled Artisans International Demand Local Demand

Dec‐07 31.00 16.00 20.00 36.00Mar‐08 35.50 27.90 22.40 11.90

Table 6: Respondents Choice of Export Destination (% Distribution) Qtr Ended USA Asia Europe Middle East Australia

Dec‐07 32.00 16.00 23.00 22.00 7.00Mar‐08 22.00 25.00 26.00 27.00 0.00


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ANNEXURE 2 ‐ POLYGON COMPANY PROFILE Polygon, (www.polygon.net) is the jewelry industry’s largest and most active online business‐to‐business Internet marketplace, created exclusively for the gems and jewelry industry. Mr. Jacques Voorhees who is currently the Chairman of Polygon founded it in May 1984. The Polygon diamond database is estimated to be the largest collection of polished diamonds in the world and one of the most complete groupings of finished jewelry available in a searchable database format. Over 3,000 retail jewelers, suppliers, manufacturers, and other jewelry industry businesses, transact several million dollars a day in business on polygon.

In December 2005, Polygon and the Dubai Multi Commodities Centre (DMCC) (www.dmcc.ae), a free‐trade zone and an initiative of the Government of Dubai, formed a joint venture corporation to support the expansion of Polygon throughout the Middle East, Asia, Africa and Russia. On June 27, 2006, Polygon announced the beginning of its global expansion, with new offices opened in Dubai, and Mumbai. Now Polygon operates also in Shenzhen and Hong Kong.

MEMBERSHIP

Polygon membership is open to companies operating in the gem and jewelry sector and helps to facilitate the connection between the wholesaler and supplier to the retailer. Jewelry suppliers use Polygon to efficiently locate and do business with buyers who do not presently purchase from them. Polygon gives companies a chance to build their brand on the Internet, by advertising their products. Retail jewelers use Polygon to source products, discover new suppliers, and find unique jewelry that they are not presently carrying. Sponsored by DMCC, local buyers within the Middle East, Asia, Africa and Russia have FREE access to Buy on Polygon and reach sellers worldwide. Sellers pay a fixed fee for participation and unlimited usage. There are no transaction fees. Polygon is not a party to the transactions, which are private between buyers and sellers. No commission fees or other types of usage fees are charge


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ANNEXURE 3 – BUSINESS CONFIDENCE SURVEY QUESTIONNAIRE FOR JAN – MAR 2008 QUARTER

1. From your perspective how was your business in Oct‐Dec 07 quarter compared to Oct‐Dec 06 quarter?

Better Worse About the same

Comments, if any ____________________________________ __________________________________________________

2. What do you envision about your company’s performance in Jan‐Mar 08 quarter compared to Jan‐Mar 07 quarter?

Better Worse About the same

Comments, if any __________________________________ ________________________________________________

FOR JEWELLERS ONLY 3. Where do you see the greatest source / s of growth in the

next Jan‐Mar 08 quarter? Use existing design concepts to enter new markets Expand current market with same design concepts Develop new design Launch new Brand Better pricing capabilities

Comments, if any __________________________________________________ __________________________________________________

FOR DIAMONDS COS. ONLY4. Where do you see the greatest source/s of growth in the

next Jan‐Mar 08 quarter? Entering new segments of Diamonds Enter new markets Diversify into Jewelry segment Better pricing capabilities

Comments, if any __________________________________ _________________________________________________ _________________________________________________

5. In the next Jan‐Mar 08 quarter, do you foresee that you will be able to price your products?

Higher Lower Same as today

Comments, if any ____________________________________ __________________________________________________ 7. What are the constraints, in your opinion for your

company’s growth in the next Jan‐Mar 08 quarter? Local Demand International Demand Skilled Labor / Artisans Raw material availability

Comments, if any ____________________________________ __________________________________________________ FOR JEWELLERS ONLY 9. What is your opinion on selling jewelry Online v/s retailing? What are the advantages and disadvantages?

6. In the next Jan‐Mar 08 quarter, what do you see your suppliers’ price you pay will be?

Higher Lower Same as today

Comments, if any _________________________________ _______________________________________________ 8. Which top 3 regions / countries do you see export

growth to come for your company in the next Jan‐Mar 2008 quarter?

1. ___________________________________________ 2. ___________________________________________ 3. ___________________________________________ Comments, if any _________________________________ _______________________________________________ FOR DIAMOND COS. ONLY 10. What is your opinion on Dubai v/s India as a diamond

trading hub? What are the advantages and disadvantages?

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