ICRA Limited (ICRA), independent and professional investment information and credit rating agency of India, has revised the outlook on cut and polished diamond (CPD) industry to ‘Negative’, given the ongoing lockdown in parts of China and Hong Kong.
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While China accounts for about 14% of polished diamond consumption, more than 35% of the exports from India are currently routed via Hong Kong. A continued lockdown in business at China and Hong Kong is likely to aggravate the pressure on the cash flows for the industry, especially in the backdrop of cautious lending to the sector.
According to ICRA, the credit profile of cut and polished diamond exporters will be adversely impacted if the Coronavirus related lockdown sustains beyond February 2020. Also, сash flow will be impacted with the stretch in the working capital cycle on the back of delay in collections and inventory build-up. As a result, this could pressurise an entity’s liquidity position and may lead to distressed sales, which will not only hurt its profitability but will also negatively impact the polished diamond prices. However, the extent of the impact on Indian CPD companies is likely to vary depending upon their exposure to China/Hong Kong.
ICRA also points out that China is currently a large exporter of diamond-studded jewellery to the US and other key markets. And, with Chinese factories operating in low capacity utilization currently, such manufacturing may be diverted to India for a short period of time. However, if the Chinese shut-down sustains for two more months, say until April 2020, then it could lead to elevated inventory levels for the Indian industry.
Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough & Polished
