Indian cut and polished diamond shipments may dip up to 10-15% to $19-20 billion in FY24, after an 8-10% contraction in the previous year, due to a worldwide recession, according to rating agency ICRA.
Tighter liquidity and macroeconomic challenges are lowering total sales, while a pricing gap between raw and polished diamonds is harming operational profit margins.
Kolkata: Diamond exports are on a freefall owing to a global recession. With an estimated decline of 8-10% in 2022-23, Indian cut and polished diamond (CPD) exports are likely to further reduce by 10-15% to $19-20 billion in FY24, ICRA said on Friday.
This, combined with sustained negative rough-polished pricing disparity, is placing pressure on the operating profit margins (OPM) of Indian diamantaires, the rating agency stated in a report.
It forecasts the OPMs of these players to have dropped by 50 basis points to 5.5% in FY23 and by a further 25-50 bps in FY24.
Although this would result in a slowdown in the credit metrics of CPD participants, managed working capital cycles would keep the total debt levels under check, it added.
“The exports of cut and polished diamonds from India are likely to shrink by 8-10% to $22 billion in FY2023, despite macroeconomic headwinds and tightening of excess liquidity worldwide,” ICRA stated.
It stated steady prices of raw diamonds owing to “controlled and lower-than-pre-pandemic supply by mining companies” are putting CPD players’ costs under pressure.
The demand challenges are especially obvious in the large-sized diamonds as customers downgrade to smaller-sized diamonds and some migrate to lab-grown diamonds owing to general inflationary pressures, it added.
“Faced with weaker demand, diamantaires’ capacity to pass on these increased raw material prices remains constrained, which would negatively influence their operating profit margins,” the rating agency added.
It anticipates rough pricing to stay stable in FY2024 as well since no big ramp-up in mining production of raw diamonds is predicted over the following two years.
The global demand downturn, caused by inflationary pressures and the current financial crisis, is projected to impose pressure on revenues in FY2024 as well.
“While CPD companies kept a rigorous control over the working capital cycle thus far, which minimized their dependency on working capital debt, their capacity to do so moving ahead would remain essential from a credit perspective,” ICRA stated.
Polished diamond prices decreased during calendar 2022 despite a downturn in demand, it added.
