Mumbai: The diamond industry is in facing major headwinds, going by a CRISIL report. Diamantaires are bracing for a decadal-low in revenues as demand slumps. Flattish margins, declining working capital requirements, and controlled debt are expected to aid credit profiles.
India’s natural diamond polishing industry is set to see revenues plummet 25-27% on-year to a decadal-low of around $12 billion this fiscal. The drop is mainly driven by three factors: muted demand in key export markets like the US and China, a 10-15% fall in diamond prices due to oversupply, and a shift in consumer preference toward lab-grown diamonds (LGDs). LGDs, which are more affordable and closely resemble natural diamonds, have gained market share.
According to international media reports, the Chinese are moving away from diamonds to gold as during the recent pandemic and economic downturn there was a realisation that diamonds do not carry much resale value.
This revenue decline marks the third consecutive fiscal year of contraction for natural diamond polishers, following a 29% fall last fiscal and a 9% drop in fiscal 2023. With demand weakening and prices dropping, diamond polishers have limited the purchase of rough diamonds and curbed manufacturing. Miners, in response, have cut production and eased inventory pressure, helping to stabilize prices of both rough and polished natural diamonds.
Operating margins are expected to stabilize at 4.5-4.7% in fiscal 2025. Lower working capital requirements will reduce reliance on external debt, supporting credit profiles in the medium term. An analysis of 40 companies rated by CRISIL Ratings, representing nearly one-fourth of the industry, confirms this outlook.
Demand from the US has been sluggish, with India’s diamond exports to the US falling 43% in value terms over the past two fiscals. The US share in India’s diamond exports dropped to 35% last fiscal from over 40% two years ago. In contrast, gold jewellery is gaining popularity in China, which accounts for 28% of India’s diamond exports, as gold is perceived as a safer asset with better returns amid economic uncertainty. The sharp decline in diamond prices over the past two to three fiscals has hindered the revival of demand for natural diamonds.
Younger consumers in key export markets are increasingly turning to LGDs, as limited disposable income constrains discretionary spending. This trend is further cutting into the share of natural diamonds.
“LGDs, which resemble natural diamonds, are 90% cheaper. Their market share in the US has increased to around 25% by value from 8% two years ago,” said Rahul Guha, director at CRISIL Ratings. “The share could have been higher if not for the sharp fall in LGD prices due to supply outpacing demand. As a result, revenue for natural diamond exporters may continue to face serious headwinds.”
In response to weak demand, miners and polishers are focusing on reducing inventory and costs this fiscal, which will lower working capital needs. Although receivables remain a concern, controlled manufacturing and exports will help mitigate receivables risk, while liquidity is expected to remain adequate.
“Due to the persistent price decline in recent fiscals, polishers have curtailed purchases, and miners have implemented production cuts while offering flexible procurement terms to ease working capital pressure for polishers,” said Rushabh Borkar, associate director at CRISIL Ratings. “Inventory levels across the value chain are expected to decline, reducing pricing risks and reliance on external borrowing over the medium term.”
Inventory is expected to reduce by more than 10% on-year this fiscal, moderating the reliance on external debt. Total outside liabilities to adjusted net worth for CRISIL-rated players will remain comfortable at 0.8 times as of March 31, 2025, compared to around 1 time on March 31, 2024. The interest coverage ratio will stay flat at 2.3-2.5 times in fiscal 2025.
