MUMBAI, 25 JULY, 2022 (GPN): Revenue of the Indian diamond industry is set to be cut 15-20% to $19-20 billion this fiscal, compared with a decadal high last fiscal, following a double blow from falling demand and rising prices of roughs across the globe.

Among the demand dampeners, a surge in Covid-19 cases has led to lockdowns in several regions in China, which is
one of the largest consumers of Indian polished diamonds. Additionally, inflation and opening up of other avenues of
discretionary spending, such as travel and hospitality, will dampen demand growth in the US and Europe in the near term.
As for prices, the US sanctions on Russian diamond mining company Alrosa following the invasion of Ukraine has cut
supplies of rough diamonds by almost 30%. The state-owned company is the largest diamond producer in the world
and the supply constraint will continue amid sanctions on Russia.

Also, key buyers in the US and EU have been insisting on certificates of origin. As a result, the prices of roughs have shot up almost 30% since the start of this fiscal.
Says Subodh Rai, Chief Ratings Officer, CRISIL Ratings, “While volatility in rough diamond prices is typically passed on to the polished diamond prices — albeit with a lag due to the long operating cycle in the trade —tepid demand has kept polished prices from fully catching up with rough prices this time around. This could
squeeze the operating profitability of Indian diamond polishers by 75-100 basis points to 4-4.25% this fiscal.

Accordingly, interest coverage may weaken marginally.” On the brighter side, payments from customers have been timely. This, along with reduced inventory, will control
reliance on external debt. As a result, the total outside liabilities to tangible networth ratio will remain under 1.5 times
for the industry, keeping the credit risk profiles of players steady.

Among other developments, pent-up demand and the strong festive season saw Indian diamantaires stocking up on
rough diamonds in the second half of last fiscal. While polished exports grew ~48% on-year last fiscal, rough diamond
imports were up ~74%, with almost 40% of the imports being in the closing quarter.

The huge inventory build-up was corrected in the first quarter of this fiscal, following the onset of the Russia-Ukraine war at the fag-end of last fiscal and disruptions in the Chinese market because of new variants of Covid-19.

Says Rahul Guha, Director, CRISIL Ratings, “The increasing prices and short supply of natural diamonds has also meant a growing shift in consumer interest towards lab-grown diamonds, which resemble natural diamonds and are 50-60% cheaper to boot, offering growth opportunities in a price sensitive market. The market share of lab-grown diamonds is estimated to have expanded to about 8% presently from less than 3% two years ago.”-Ends.

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CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and infrastructure
investment trusts (InvITs).

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About CRISIL Limited
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CRISILis majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analyticsa and data to the capital and commodity markets worldwide.

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