India’s cut and polished diamond (CPD) exports are expected to decline to a decade-low of $12.5-13.0 billion in FY2025, according to ICRA,͏͏ marking͏͏ an͏͏ 18-19%͏͏ year-on-year͏͏ contraction.͏͏ This͏͏ decline͏͏ is͏͏ driven͏͏ by͏͏ a͏͏ 13-14%͏͏ drop͏͏ in͏͏ volumes͏͏ and͏͏ a͏͏ 5-6%͏͏ softening͏͏ in͏͏ average͏͏ realisations.͏͏ ICRA͏͏ maintains͏͏ a͏͏ negative͏͏ outlook͏͏ on͏͏ the͏͏ sector.
Contraction͏͏ Driven͏͏ by͏͏ Market͏͏ Forces:
ICRA’s͏͏ recent͏͏ note͏͏ highlights͏͏ a͏͏ 28%͏͏ contraction͏͏ in͏͏ India’s͏͏ CPD͏͏ exports͏͏ in͏͏ FY2024,͏͏ driven͏͏ by͏͏ challenging͏͏ global͏͏ macroeconomic͏͏ conditions͏͏ and͏͏ rising͏͏ competition͏͏ from͏͏ lab-grown͏͏ diamonds͏͏ (LGD).͏͏ The͏͏ downturn͏͏ persists͏͏ due͏͏ to͏͏ weak͏͏ demand͏͏ in͏͏ key͏͏ markets—the͏͏ US,͏͏ impacted͏͏ by͏͏ inflation,͏͏ and͏͏ China,͏͏ where͏͏ consumer͏͏ preferences͏͏ are͏͏ shifting͏͏ away͏͏ from͏͏ diamonds.͏͏ In͏͏ the͏͏ first͏͏ four͏͏ months͏͏ of͏͏ FY2025,͏͏ CPD͏͏ exports͏͏ have͏͏ seen͏͏ a͏͏ further͏͏ 19%͏͏ year-on-year͏͏ decline.
Although͏͏ some͏͏ sequential͏͏ volume͏͏ improvement͏͏ is͏͏ anticipated͏͏ in͏͏ the͏͏ coming͏͏ months͏͏ due͏͏ to͏͏ the͏͏ festive͏͏ season,͏͏ this͏͏ will͏͏ be͏͏ offset͏͏ by͏͏ ongoing͏͏ pressure͏͏ on͏͏ polished͏͏ diamond͏͏ prices,͏͏ exacerbated͏͏ by͏͏ high͏͏ inventory͏͏ levels.͏͏ As͏͏ a͏͏ result,͏͏ the͏͏ rating͏͏ agency͏͏ has͏͏ maintained͏͏ its͏͏ negative͏͏ outlook͏͏ for͏͏ the͏͏ sector.
Weak͏͏ Demand͏͏ in͏͏ Key͏͏ Markets:
Sakshi͏͏ Suneja,͏͏ Vice͏͏ President͏͏ &͏͏ Sector͏͏ Head͏͏ –͏͏ Corporate͏͏ Ratings,͏͏ ICRA,͏͏ stated,͏͏ “CPD͏͏ players͏͏ have͏͏ been͏͏ grappling͏͏ with͏͏ a͏͏ sustained͏͏ demand͏͏ slowdown͏͏ in͏͏ the͏͏ US͏͏ and͏͏ China,͏͏ driven͏͏ by͏͏ weak͏͏ economic͏͏ conditions͏͏ and͏͏ ongoing͏͏ inflationary͏͏ pressures.͏͏ In͏͏ China,͏͏ demand͏͏ has͏͏ also͏͏ been͏͏ affected͏͏ by͏͏ the͏͏ renewed͏͏ preference͏͏ for͏͏ gold͏͏ amid͏͏ the͏͏ country’s͏͏ economic͏͏ uncertainties.͏͏ Additionally,͏͏ geopolitical͏͏ tensions͏͏ and͏͏ G7͏͏ restrictions͏͏ on͏͏ Russian͏͏ diamonds͏͏ have͏͏ further͏͏ dampened͏͏ demand͏͏ in͏͏ Europe.”
Rising͏͏ Competition͏͏ from͏͏ Lab-Grown͏͏ Diamonds:
Additionally,͏͏ the͏͏ growing͏͏ popularity͏͏ of͏͏ lab-grown͏͏ diamonds,͏͏ which͏͏ are͏͏ priced͏͏ considerably͏͏ lower͏͏ than͏͏ natural͏͏ diamonds,͏͏ continues͏͏ to͏͏ affect͏͏ demand͏͏ for͏͏ larger͏͏ stones,͏͏ particularly͏͏ those͏͏ in͏͏ the͏͏ one͏͏ to͏͏ three-carat͏͏ range.͏͏ India,͏͏ however,͏͏ remains͏͏ a͏͏ bright͏͏ spot͏͏ globally,͏͏ with͏͏ rising͏͏ demand͏͏ for͏͏ diamond-studded͏͏ jewellery.
Continue͏͏ Exploring:͏͏ Lab-grown͏͏ diamonds lose͏͏ lustre:͏͏ Prices͏͏ fall͏͏ 74%͏͏ from͏͏ $300͏͏ to͏͏ $78͏͏ per͏͏ carat
Polished͏͏ diamond͏͏ prices͏͏ have͏͏ been͏͏ on͏͏ a͏͏ decline͏͏ since͏͏ April͏͏ 2022͏͏ due͏͏ to͏͏ sluggish͏͏ demand,͏͏ reaching͏͏ a͏͏ record͏͏ low͏͏ in͏͏ August͏͏ 2024.͏͏ Despite͏͏ the͏͏ upcoming͏͏ festive͏͏ season,͏͏ the͏͏ pressure͏͏ on͏͏ polished͏͏ prices͏͏ is͏͏ expected͏͏ to͏͏ continue͏͏ into͏͏ H2͏͏ FY2025͏͏ as͏͏ CPD͏͏ players͏͏ work͏͏ to͏͏ offload͏͏ their͏͏ high͏͏ inventories.
Rough͏͏ diamond͏͏ prices,͏͏ which͏͏ saw͏͏ some͏͏ correction͏͏ recently,͏͏ are͏͏ expected͏͏ to͏͏ stay͏͏ firm͏͏ with͏͏ major͏͏ miners͏͏ announcing͏͏ production͏͏ cuts͏͏ in͏͏ FY2025͏͏ to͏͏ match͏͏ demand.͏͏ Intensified͏͏ sanctions͏͏ on͏͏ Alrosa͏͏ PJSC,͏͏ the͏͏ third-largest͏͏ rough͏͏ diamond͏͏ supplier,͏͏ by͏͏ G7͏͏ nations͏͏ will͏͏ also͏͏ restrict͏͏ further͏͏ price͏͏ corrections͏͏ in͏͏ roughs.͏͏ Consequently,͏͏ the͏͏ rough-polished͏͏ price͏͏ differential͏͏ is͏͏ likely͏͏ to͏͏ remain͏͏ under͏͏ pressure,͏͏ and͏͏ along͏͏ with͏͏ reduced͏͏ operational͏͏ scale,͏͏ this͏͏ is͏͏ projected͏͏ to͏͏ reduce͏͏ Indian͏͏ diamantaires’͏͏ operating͏͏ profit͏͏ margins͏͏ by͏͏ 60-70͏͏ basis͏͏ points͏͏ in͏͏ FY2025,͏͏ according͏͏ to͏͏ ICRA’s͏͏ assessment.
Suneja͏͏ further͏͏ noted,͏͏ “The͏͏ credit͏͏ profile͏͏ of͏͏ Indian͏͏ CPD͏͏ players͏͏ weakened͏͏ in͏͏ FY2024͏͏ due͏͏ to͏͏ an͏͏ extended͏͏ working͏͏ capital͏͏ cycle͏͏ caused͏͏ by͏͏ inventory͏͏ build-up͏͏ amidst͏͏ declining͏͏ demand͏͏ and͏͏ rising͏͏ global͏͏ lending͏͏ rates.͏͏ This͏͏ subdued͏͏ credit͏͏ profile͏͏ is͏͏ expected͏͏ to͏͏ persist͏͏ in͏͏ FY2025͏͏ due͏͏ to͏͏ reduced͏͏ operational͏͏ scale,͏͏ lower͏͏ profitability,͏͏ and͏͏ ongoing͏͏ working͏͏ capital͏͏ challenges.͏͏ However,͏͏ the͏͏ effects͏͏ of͏͏ these͏͏ decade-low͏͏ operational͏͏ levels͏͏ may͏͏ be͏͏ less͏͏ pronounced͏͏ for͏͏ certain͏͏ entities͏͏ that͏͏ manage͏͏ their͏͏ working͏͏ capital͏͏ effectively͏͏ and͏͏ minimise͏͏ reliance͏͏ on͏͏ external͏͏ debt.͏͏ Consequently,͏͏ efficient͏͏ inventory͏͏ management͏͏ will͏͏ be͏͏ crucial͏͏ from͏͏ a͏͏ credit͏͏ perspective.”
ICRA͏͏ anticipates͏͏ that͏͏ the͏͏ interest͏͏ coverage͏͏ ratio͏͏ for͏͏ CPD͏͏ entities͏͏ in͏͏ its͏͏ sample͏͏ set͏͏ will͏͏ decline͏͏ to͏͏ 2.7-2.8͏͏ times͏͏ in͏͏ FY2025,͏͏ compared͏͏ to͏͏ 3.0͏͏ times͏͏ in͏͏ FY2024͏͏ and͏͏ 4.6͏͏ times͏͏ in͏͏ FY2023.͏͏ Additionally,͏͏ total͏͏ outside͏͏ liabilities͏͏ to͏͏ tangible͏͏ net͏͏ worth͏͏ is͏͏ projected͏͏ to͏͏ be͏͏ 1-1.2͏͏ times͏͏ as͏͏ of͏͏ March͏͏ 31,͏͏ 2025,͏͏ up͏͏ from͏͏ 1.0͏͏ times͏͏ on͏͏ March͏͏ 31,͏͏ 2024,͏͏ and͏͏ 1.2͏͏ times͏͏ on͏͏ March͏͏ 31,͏͏ 2023.
