Diamantaires Brace For Decadal-low Revenues As Demand Slumps

India’s natural diamond polishing industry will see revenues plummet 25 to 27 per cent on-year to a decadal-low of USD 12 billion this fiscal, said Crisil Ratings. This is mainly on account of three reasons: one, muted demand in key export markets of the US and China; two, a 10 to 15 per cent fall in diamond prices amid oversupply; and three, a shift in consumer preference towards lab-grown diamonds (LGDs). 

LGDs have gained market share due to their affordability and high resemblance to natural ones. Notably, revenue will decline for the natural diamond polishers third fiscal in a row after contracting 29 per cent in the last fiscal and 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 the purchase of roughs and have curbed manufacturing. In turn, miners have cut production and eased 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 to 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.

The rating agency stated that the sluggish demand from the US has meant India’s diamond exports to that market fell 43 per cent in value terms over the past two fiscals, with the share of the US in India’s diamond exports reducing to 35% 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 two to three 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 spending. This is further eating into the share of natural diamonds.

Rahul Guha, Director, Crisil Ratings said, “LGDs, which resemble natural diamonds, are 90% cheaper. Their market share has increased to about 25% 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.”

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.

Rushabh Borkar, Associate Director, Crisil Ratings stated, “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 per cent on-year this fiscal leading to moderate reliance on external debt. The total outside liabilities to adjusted net worth ratio for players rated by CRISIL Ratings will remain comfortable at 0.8 times as on 31 March 2025, as against one time as on 31 March 2024. Additionally, the interest coverage ratio will remain flat at 2.3-2.5 times in fiscal 2025, Crisil Ratings added.