India’s natural diamond polishing industry will see revenues plummet 25-27% on-year to a decadal-low of ~$12 billion this fiscal. This is mainly on account of three reasons: one, muted demand in key export markets of the US and China; two, a 10-15% fall in diamond prices amid oversupply; and three, 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.
Notably, revenue will decline for the natural diamond polishers’ third fiscal in a row after contracting ~29% in the last fiscal and ~9% 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.
As a result, operating margins will stabilise at 4.5-4.7% in fiscal 2025. Overall, lower working capital requirement will limit reliance on external debt and support credit profiles over the medium term. An analysis of 40 companies rated by Crisil Ratings, accounting for nearly one-fourth of the industry, indicates as much.
Sluggish demand from the US has meant India’s diamond exports to that market fell 43% in value terms over the past two fiscals, with the share of US in India’s diamond exports reducing to 35% last fiscal from over 40% two years back.
On the other hand, preference for gold jewellery is growing in China (which accounts for 28% 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.
Furthermore, the youth in these key export markets is increasingly embracing LGDs as limited disposable incomes are constraining discretionary spends. This is further eating into the share of natural diamonds.
Says Rahul Guha, Director, Crisil Ratings, “LGDs, which resemble natural diamonds, are 90% cheaper. Their market share has increased to about 25% by value in the US from ~8%, 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.”
As miners and polishers prepare for continued weak demand, they are 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.
Says Rushabh Borkar, Associate Director -Crisil Ratings, “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.”
Inventory will reduce more than 10% on-year this fiscal 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.