Bengaluru: The natural diamond polishing industry in India will see its revenue fall by 25-27 per cent year-on-year (YoY) to a decadal-low of $12 billion in the current financial year (FY), according to a report by CRISIL Ratings released on Wednesday.
The report attributed this decline to factors such as muted demand in key export markets like the US and China, a 10-15 per cent drop in diamond prices due to oversupply, and a shift in consumer preference to lab-grown diamonds (LGDs).
Sluggish demand from the US has led to a 43 per cent drop in the value of India’s diamond exports to that market over the past two fiscal years, reducing the US's share of India’s diamond exports to 35 per cent last fiscal year, down from over 40 per cent two years ago.
Meanwhile, in China, which gets 28 per cent of India’s diamond exports, consumer preference is shifting toward gold jewelry. Gold is seen as a safer asset, offering better returns amid economic uncertainty.
This revenue decline for natural diamond polishers marks the third consecutive fiscal year of contraction, following declines of 29 per cent in FY24 and 9 per cent in FY23. LGDs have gained market share due to their affordability and close resemblance to natural diamonds.
“LGDs, which resemble natural diamonds, are 90 per cent cheaper. Their market share in the US has risen to 25 per cent by value, up from 8 per cent two years ago,” said Rahul Guha, Director at CRISIL Ratings. This means LGDs now account for 25 per cent of the total value of diamond sales in the US market.
According to a report posted last week by the Global Trade Research Initiative, the gap between net rough diamond imports and net cut and polished diamond exports widened significantly to $4.4 billion in FY24, from $1.6 billion in FY22. This reflects weak global markets, large inventory buildup, and a lack of sufficient export orders.
In contrast, CRISIL's report noted that due to sluggish demand, polishers are limiting their purchase of rough diamonds and curbing the production of polished diamonds to avoid the accumulation of unsold inventory. In response to the reduced demand, miners have decreased production, which has helped arrest the fall in rough and polished natural diamond prices by easing the inventory pressure.
As a result, operating margins are expected to stabilise at 4.5-4.7 per cent in fiscal 2025. Additionally, lower working capital requirements will reduce reliance on external debt, supporting credit profiles over the medium term.
Inventory is expected to decrease by more than 10 per cent YoY in FY25, leading to a moderate reliance on external debt. An analysis of 40 companies rated by CRISIL Ratings, which account for nearly one-fourth of the industry, supports this outlook.