Declining for the third fiscal in a row, the natural diamond polishing industry's revenues are estimated to fall 25-27 per cent year-on-year to a decadal low of USD 12 billion this fiscal, it added.
India's natural diamond polishing industry is likely to witness a 25-27 per cent decline in revenue to a decadal-low of USD 12 billion this fiscal on lower demand in key markets and a shift in preference to consumer lab-grown diamonds, according to a report released on Wednesday.
The decline in revenue is mainly due to muted demand in key export markets of the US and China, a 10-15 per cent fall in diamond prices amid oversupply and a shift in consumer preference towards lab-grown diamonds (LGDs), Crisil Ratings said in its report.
Declining for the third fiscal in a row, the natural diamond polishing industry's revenues are estimated to fall 25-27 per cent year-on-year to a decadal low of USD 12 billion this fiscal, it added.
The industry's revenue contracted 29 per cent in the previous fiscal and 9 per cent in FY23.
The report stated that tepid demand amid decreasing prices has seen diamond polishers limiting the purchase of roughs and have curbed manufacturing.
In turn, miners have cut production and eased inventory push, which has helped arrest the fall in the prices of roughs and polished natural diamonds.
As a result, operating margins will stabilise at 4.5-4.7 per cent in FY25.
Overall, lower working capital requirements will limit reliance on external debt and support credit profiles over the medium term.
Sluggish demand from the US resulted in a 43 per cent decline in exports to that market in value terms over the past two fiscals, with the share of the US in India's diamond exports reducing to 35 per cent in FY24, from over 40 per cent two years back, Crisil Ratings said.
On the other hand, the report said, preference for gold jewellery is growing in China, which accounts for 28 per cent of India's exports, as the yellow metal continues to be perceived as a safer asset providing better returns amid economic uncertainty.
A sharp decline in diamond prices over the past 2-3 fiscals has hindered the revival of demand for natural diamonds.
Further, the youth in these key export markets are increasingly embracing LGDs as limited disposable incomes are constraining discretionary spending, which eats into the share of natural diamonds, Crisil Ratings said.
"LGDs, which resemble natural diamonds, are 90 per cent cheaper. Their market share has increased to about 25 per cent by value in the US from 8 per cent, two years ago. The share would have been higher, if not for the sharp fall in LGD prices owing to supply outpacing demand. As a result, revenue of natural diamond exporters may continue to face serious headwinds," Crisil Ratings Director Rahul Guha said.
As miners and polishers prepare for continued weak demand, they are focusing on reducing inventory and costs in FY25, which will lower working capital requirements.
Meanwhile, liquidity will likely remain adequate, said the report.
"Due to persistent price falls in recent fiscals, polishers have curtailed purchases and miners have implemented production cuts while offering flexible procurement terms to partially alleviate working capital pressure for polishers.
"Inventory levels across the value chain are expected to decline, mitigating pricing risks and reducing reliance on external borrowing, over the medium term," Crisil Ratings Associate Director Rushabh Borkar said.
Inventory will reduce more than 10 per cent year-on-year this fiscal leading to moderate reliance on external debt, said the report.