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Pent-up demand to curb diamond industry revenue slide
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SME Times News Bureau | 21 Jan, 2021
The recent upsurge in spending on diamonds, riding on a
combination of pent-up demand and recovery in retail offtake in key
markets such as the US and China, is expected to help India's diamond
industry contain its decline and close this fiscal with revenue of over
$15 billion, according to a report by Crisil.
Once the Covid-19
pandemic took hold, the industry was expected to see a third shaved off
its top-line this fiscal. However, this could now get arrested at around
20 per cent, the ratings agency said.
Sluggish demand and
extended lockdowns globally saw exports plunge to $5.5 billion in the
first half, almost halving on-year. In the third quarter, however,
exports have risen to an estimated monthly average of $1.6 billion,
setting the industry up for a tryst with the $15 billion mark for the
full year.
According to Subodh Rai, Chief Ratings Officer, CRISIL Ratings Ltd, trends in recent months have been encouraging.
"Retail
sales in the US and China have grown by about 3-5 per cent, which would
provide the industry sustained momentum over the medium term. While
there are new lockdowns in some parts of the EU, the launch of Covid-19
vaccines across the globe is expected to mitigate a massive disruption
hereon," he said.
The analysis factors inputs from CRISIL's rated
portfolio of 70 polished diamond exporters, which represent close to 30
per cent of the industry.
At the start of the fiscal, the
industry was grappling with significant build-up of inventory --
comprising both roughs and polished diamonds -- over the previous seven
months. While prices of roughs had remained firm, weak demand meant the
prices of polished diamonds were falling, thus setting the industry up
for significant inventory losses.
Amid the weak demand scenario,
however, the miners reduced the prices of roughs by almost 10 per cent
around the end of the second quarter. With demand also on the rise
gradually, the prices of polished diamonds increased by almost 2 per
cent in the third quarter. This helped the industry wipe out a portion
of the operating losses of the first half.
With prices now stabilising, operating profitability is expected to remain intact for the full year.
Says
Rahul Guha, Director, CRISIL Ratings Ltd, "Added to this, cash-flow
challenges have receded. Following the significant reduction in sales in
the peak lockdown period of the first quarter, Indian diamantaires had
focussed on streamlining collections and reducing inventory levels. This
is borne out by the average receivables period and inventory period,
which are just over 2 months and 5 months today compared with well over 3
months and 7 months, respectively, at the end of the first quarter."
Typically,
Indian polishers start building inventory from the end of second
quarter and into the third to keep up with the sharp sales surge
starting November every fiscal with festivals across the globe also
coinciding with the Chinese New Year. That hasn't happened this fiscal
as the industry was focussing on clearing its already stocked-up
inventory.
That said, intermittent liquidity challenges have been
supported by timely extension of due dates on post-shipment credit by
Indian banks.
The industry's approach to structurally correct its
working capital cycles on a sustained basis will, however, remain a key
monitorable.
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Customs Exchange Rates |
Currency |
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56.85 |
As on 13 Aug, 2022 |
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