Hello Sir,
Hope you are doing well.
Recently I was reading about Lab Grown Diamonds (LGD) which are fast gaining acceptability in the Indian market.
Source: Goldiam Investor Presentation
As per our understanding, currently Goldiam International is the only major listed company dealing in LGDs and primarily sells in US market.
LGDs are chemically, optically and physically identical to earth mined diamonds, but are significantly more affordable. As per Economic Times article, a carat of LGD costs ₹60,000-70,000, a fraction of ₹10-11 lakh for a natural diamond. Further, 60% YOY growth in the demand for LGDs is expected this festive season
Below, we have shared interesting insights from the Q2 FY 24 con-call of Goldiam International to understand the current situation and the outlook for the industry.
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Goldiam International – Insights from Q2 FY 24 con-call of the company
– General
- Our company has exhibited solid growth, despite the challenging macro environment in our key markets, particularly in the USA
- I believe the overall industry in the last quarter has de-grown by 3% to 5%, whereas Goldiam has a revenue growth
- While the USA remains a crucial market for us, we are making strides in the Middle East, the UK, the European Unions, as well as potentially broadening our horizons with an introduction in India
- Out of the sales that we do of lab-grown diamond jewellery, about a third is grown in-house
- In terms of our revenue contribution, our top five customers would probably be in that range of 50% to 55% of our overall revenue
- Within natural diamond jewellery, our average selling price used to be in the range of $500
- Interestingly, even though lab-grown is a lower cost alternative, our average selling price of lab-grown diamond jewellery is close to $850, $900
- A one carat solitaire, which retails in India natural diamonds made for about INR4 lakhs to INR5.5 lakhs. But in lab-grown that same one carat diamond can be available for Rs 50,000
– Why margins not higher at 25-30% despite higher contribution of LGD?
- In H1, we have about INR 10 crores to 12 crores of inventory realignment that we have taken as lab-grown prices have fallen
- We are very happy with the level of margin performance we have delivered in the range of 20% to 22%. If we can sustain this during this environment, we would certainly be very happy with that
- We are probably one of the only companies out there who actually grow the diamond, cut the diamond, design the jewellery, produce the jewellery and export jewellery to direct retailers. So, I think with that, margins will continue to be stable
– Competitive advantage in LGD
- For a company like ours, being backward integrated into growing lab-grown diamonds will only help us with additional margin and a boost to our margin profile
- The true sustainable advantage and competitive advantage is in securing strong distribution with large retail partners and forward integrating into jewellery as much as possible
– Growth strategies
- We’ve been working on as a company to increase wallet share with our customers
- We are looking at additional markets, as well as, very importantly, additional categories of jewellery
- We will not just be focused on bridal, but very soon we are planning on introducing new collections for high-end fashion
– Industry scenario
- Demand scenario in the US, of course, the macro environment remains challenging, particularly for our set of retailers, which is middle market USA
- The end customer is impacted by higher mortgage rates, higher interest rates that are eating away from their available wallet share
- our company being more of a bridal-focused company, the last four quarters, we have faced a challenge in terms of further uptake of bridal jewellery sales
- We are mitigating the lack of demand in natural diamond jewellery with an increase in demand in lab-grown diamond jewellery
- Consumers are being almost pushed into buying more lab-grown diamond jewellery because of tighter wallet restrictions
- Increasingly, we are seeing all these retailers shift toward new orders being placed on lab-grown, as you can see in our sales mix as well
- We see lab-grown prices now moving forward being fairly stable as well
– Guidance
- We are looking at anywhere between 20% to 25% EBITDA margin on a company level
(End)
Disclaimer: This is not a recommendation to buy/sell Goldiam International. The securities quoted are for illustration only and are not recommendatory.
Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
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