Revenue from India’s diamond polishing industry is set to plunge to its lowest level in a decade as COVID-19 measures in the U.S. and Europe (Belgium) has hindered sales and caused prices to fall, reports an India credit-rating agency. The agency projects sales in fiscal 2021 (April 2t020 - March 2021) to drop to the lowest level in a decade, $13-15 billion, which is 21%-32% lower than the estimated ~$19 billion in fiscal 2020 revenues and 38%-46% lower than the $24 billion earned in fiscal 2019. "The reduction in sales, coupled with potential inventory losses, cannot but impact the profitability of Indian diamantaires in fiscal 2021," the agency (CRISIL) writes.
The agency notes that exports to the U.S. and Belgium, which together account for over 45% of India’s polished diamond exports, fell a staggering 41% year-on-year in February as the pandemic intensified, and have plunged further since then, especially with the nationwide lockdown starting mid-March. Exports to other markets have suffered as well, they note. In Hong Kong and China, which account for about 45% of India's polished exports, demand for luxury goods such as diamonds, jewelry and watches is "estimated to have nosedived by 79% in February and even further since then." The agency adds, "Assuming the pandemic starts subsiding by June and trade channels normalise over the next quarter, CRISIL expects a revival in demand to be pushed into the second half of the fiscal."
With very limited trade taking place over the past two months, “the inventory levels are estimated to have increased 15-20% over the March quarter," says Subodh Rai, Senior Director, CRISIL Ratings. "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.” And the difficulties do not end there, as the downturn has led to "cash-flow challenges that will continue to test the liquidity profile of Indian exporters."
They explain that payments from China started declining in February, while those from the US and the EU were regular. Since March, however, Indian manufacturers have seen their payments from clients across the globe fall to about 25-30% of the actual monthly dues. "This could test the ability of the Indian exporters to clear the maturing post shipment credit on time." Indian banks have been extending the due dates on such post-shipment credit bills by 60-90 days on a case-to-case basis.
"Over the near to medium term, the credit risk profiles of Indian diamond polishers will be tested given declining scale of operations, pressure on profitability and elongated working capital cycle,” concludes Rahul Guha, Director, CRISIL Ratings.