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Economic Concerns May Hurt India’s Gems & Jewelry Exports

CARE Ratings warns that diamond cutting operating margins will remain under pressure.
Dec 28, 2011 4:08 AM   By Dilipp S Nag
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RAPAPORT... Ongoing global economic uncertainties are expected to impact India’s gems and jewelry sector, with operating margins for diamond cutting  projected to remain under pressure, warned Credit Analysis & Research Ltd. (CARE Ratings).

The ratings agency observed the trend taking hold in export figures for India's first fiscal-half of 2012, which closed in September.  India’s gems and jewelry exports grew by 17.4 percent year on year through September 30, but growth was driven by a 41 percent increase in exports of gold jewelry, coins and medallions, due to higher prices. However, exports of polished diamonds increased by a meager 4.4 percent year on year in value terms during the period and declined by 5 percent in volume terms, the agency noted.

''The value of exports has shown an increase despite sluggish demand in the U.S. and European markets, largely because of rise in raw material cost,” CARE Ratings stated. ''The operating margins, especially in the cut and polished diamonds segment, are expected to remain under pressure.''

CARE analysts Rajan Sharma and Pulkit Agarwal noted that global demand for rough diamonds has remained robust in recent quarters, while supply has been restricted, causing a sharp increase in prices.

Margins were further pressured as the increase in average polished prices during the fiscal half  was marginal and lagged behind the rise in rough prices. This was due to a strong resistance to increase polished prices by both domestic and international buyers, the analysts explained.

The ratings agency further cautioned that record gold prices and high inflation may weaken local Indian demand for gems and jewelry products, given that they are  discretionary products. CARE added that domestic growth will continue to be driven by higher disposable income groups, the rising young population, the growing number of working women, and the increased focus on branding and organized retail.

The agency stressed that larger players with strong sourcing relationships for raw materials and those with geographically diversified clientele and higher value addition, combined with a more conservative foreign exchange and liquidity management policy are likely to exhibit more stable credit profiles.

The gems and jewelry industry contributed about 17.5 percent to the total export earnings of India in fiscal 2011, with exports rising 47 percent year on year to $43.14 billion, CARE Ratings stated.

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Tags: CARE Ratings, diamond, Dilipp S Nag, EU, Europe, exports, gems, Gems & Jewelry, gold, India, jewellery, Jewelry, polished, US
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