India’s natural diamond polishing industry is expected to see revenues plummet 25-27 per cent on-year to a decadal low of around $12 billion this fiscal, stated a report by CRISIL Ratings. This, it added, was mainly on account of three reasons: muted demand in key export markets of the US and China, a 10-15 per cent fall in diamond prices amid oversupply, and shift in consumer preference towards lab-grown diamonds (LGDs). LGDs have gained market share due to their affordability and high resemblance to the natural ones.
Revenue for the natural diamond polishers is expected to decline for the third fiscal in a row after contracting approximately 29 per cent in the last fiscal and around 9 per cent in fiscal 2023. “Given it is a buyer’s market due to tepid demand amid decreasing prices, diamond polishers are seen limiting purchase of roughs and have curbed manufacturing. In turn, miners have cut production and eased on inventory push, which has helped arrest the fall in the prices of roughs and polished natural diamonds, said CRISIL Ratings.
As a result, it added, operating margins will stabilise at 4.5-4.7 per cent in fiscal 2025. Overall, lower working capital requirements will limit reliance on external debt and support credit profiles over the medium term.
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CRISIL Ratings analysed 40 companies accounting for nearly one-fourth of the industry, to release these findings.
India’s diamond exports to the US fell by 43 per cent in value terms over the past two fiscals due to sluggish demand in the market, with the share of US in India’s diamond exports reducing to 35 per cent last fiscal from over 40 per cent two years back. On the other hand, preference for gold jewellery is growing in China (which accounts for 28 per cent of India’s exports), as gold continues to be perceived as a safer asset providing better returns amid economic uncertainty. A sharp decline in diamond prices over the past 2-3 fiscals has hindered the revival of demand for natural diamonds, CRISIL added.
Furthermore, the youth in these key export markets are increasingly embracing LGDs as limited disposable incomes are constraining discretionary spends. This is further eating into the share of natural diamonds.
Rahul Guha, Director, CRISIL Ratings, said, “LGDs, which resemble natural diamonds, are 90 per cent cheaper. Their market share has increased to about 25 per cent by value in the US from ~8 per cent, two years ago. The share would have been higher, if not for the sharp fall in LGD prices owing to supply outpacing demand. As a result, revenue of natural diamond exporters may continue to face serious headwinds.”
With continued weak demand, miners and polishers are now focusing on reducing inventory and costs this fiscal, which will lower working capital requirements. While receivables remain monitorable, controlled manufacturing and exports will mitigate receivables risk. Meanwhile, liquidity will likely remain adequate.
Rushabh Borkar, Associate Director, CRISIL Ratings, said, “Due to persistent price fall in recent fiscals, polishers have curtailed purchases and miners have implemented production cuts while offering flexible procurement terms to partially alleviate working capital pressure for polishers. Inventory levels across the value chain are expected to decline, mitigating pricing risks and reducing reliance on external borrowing, over the medium term.”
This fiscal, inventory is expected to reduce by more than 10 per cent on-year leading to moderate reliance on external debt. Total outside liabilities to adjusted net worth ratio for players rated by CRISIL Ratings will remain comfortable at 0.8 time as on March 31, 2025, as against ~1 time as on March 31, 2024. Additionally, interest coverage ratio will remain flat at 2.3- 2.5 times in fiscal 2025.
That said, CRISIL concluded, demand for natural diamonds and the industry’s working capital management will bear watching.
From: financialexpress
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