India

Diamond Industry to see Lowest Revenue in a Decade

India’s diamond polishing industry may see the weakest revenue in a decade after subdued demand from the US and European Union.

The shift in epicentre of pandemic Covid-19 from China has caused the demand to subside.

Industry’s revenue will plunge to $13-15 billion in fiscal 2021 from $24 billion in fiscal 2019, according to CRISIL, an S&P global ratings company. It estimates about $19 billion in revenue in fiscal 2020. CRISIL projects a 31% decline in India’s diamond sales for the fiscal year that will end March 31, 2021.

Exports to the US and European Union accounts for over 45% of India’s polished diamond exports. The exports to these two countries crashed 41% in February from a year earlier and have plunged further since the nationwide lockdown in March. Exports to Hong Kong and China fell as demand for luxury items plummeted 79% in February. The reduction in sales and potential loss in inventory will impact the profitability in the coming fiscal, CRISIL said in a note.

“The inventory levels are estimated to have increased 15-20% over the March quarter,” Subodh Rai, Senior Director, CRISIL Ratings said. “With the pandemic hitting all major global markets, prices fell by an average 7% across various cuts of polished diamonds in March 2020, which means likely inventory losses.”

As the payments reduced to about 25-30% of the actual monthly dues since March, maintain cash-flow will be a challenge for Indian Exporters. This could delay the repayment of loan to the banks against the shipment. However, Indian banks have been extending the due dates on such post-shipment credit bills by 60-90 days.

Rahul Guha, Director, CRISIL Ratings, said that there are several factors that need to be looked at. In the immediate term, the crucial one would be the frequency and amount of payments by importers. “Over the near to medium term, the credit risk profiles of Indian diamond polishers will be tested given the declining scale of operations, pressure on profitability and elongated working capital cycle,” he added.

India’s leading diamond-trade organizations asked its members to stop importing rough for at least a month from May 15, to prevent an oversupply and ensure banks maintain their credit to the sector.

However, CRISIL expects demand to revive in the second half of the fiscal as trade opens up.

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