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| Diamond industry eyes better margins |
| Dilip Kumar Jha / Mumbai Mar 10, 2009, 00:33 IST |
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 Amid the gloom in the diamond industry, Indian companies have something to cheer on — higher margins posted in this quarter. Industry players, however, said that the impact would not be sufficient to offset the impact of the recession in the US, where sales have been hit.
With the global downturn affecting retail sales, domestic diamond processors are able to bargain for better rates for roughs. According to data sourced from the International Diamond & Jewellery exchange (IDEX), the average price of semi-polished diamonds has dropped by 1.68 per cent over the last two months. Since February 2008, prices are nearly 6.2 per cent lower.
Industry sources said that the cost of roughs have fallen by 10 per cent over the last two months and by 30 per cent from their August peak. But with jewellery sales dropping in recent months and companies having piled up stocks for nine to 10 months, instead of the average inventory of three to four months, importers are not buying roughs in a big way.
In addition, the 6 per cent depreciation of the rupee against the dollar is helping them realise higher margins for the exports undertaken by them, though imports have become expensive.
“Margins have doubled to about 12 per cent in the last two months since the rupee’s fall began,” said Mehul Choksi, chairman of the Rs 4,500-crore Gitanjali Gems. But the gains are limited since only 13 per cent of the company’s turnover is accounted for by sales in the US.
Besides, companies said, that the impact of higher margins was limited since exports have been affected due to the recession in the US and other developed markets, resulting in nearly 200,000 workers being retrenched.
Nearly, 90 per cent of the diamond exports are to the US. As a result, during April-January 2008-09, the exports of cut and polished diamond declined 2.85 per cent to $11.34 billion, in contrast to a 6.63 per cent growth to Rs 11,020 crore (in Apr-Jan) during the corresponding period last year.
What is adding to the woes of companies which sold or exported diamond studded jewellery is the 13 per cent rise in gold prices.
The slowdown in the industry is reflected in the 13 per cent drop in the import of cut and polished diamonds to $8.15 billion during the first 10 months of the current financial year, as against a phenomenal 53.88 per cent rise at $5.72 billion in the corresponding period last year. Pravin Nanavati, joint secretary, Gujarat Heera Bourse, said that there were some signs of a pick-up, albeit in the domestic market, as consumers were opting for diamond, partly due to the current fashion trends and also due to the 13 per cent rise in gold prices.
Besides, Vishal Doshi, group executive director of Shrenuj, one of the largest diamond jewellery exporters said that with most of the billing, including transportation, labour and inventory costs, done in dollar-terms, there might be a negative impact of the rupee depreciation. “Looking at the volatility in rupee, it is very difficult to assume the effect on margins. But, margins will increase in both rupee and dollar term with the fall in rupee and diamond prices,” Doshi added.
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