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 A DIAMOND PERSPECTIVE « SUNNY SOLANKI SCMHRD 

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    A DIAMOND PERSPECTIVE

    SUNNY SOLANKI

    SCMHRD

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    CONTENTS OF THE PROJECT Introduction of Diamond as gem

    Properties of Diamond

    Global Birds Eye View on Diamond

    The Indian perspective

    The Status-Quo Diamond in various Indianstates

    The Demand forecast Analysis

    The Roadmap for the future

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    Introduction to Diamond as a gem .. Diamond is one of the precious gemstones known to

    mankind

    Out of all the gemstones available it is the costliest aswell as Hardest

    Diamond is highly cherished because of its Rarity,Eternity, and Purity

    Diamond is perceived as a Status symbol and usuallyconsidered to be the prerogative of the rich people

    Diamond Industry is Huge in terms of the value and

    volume The most familiar usage of diamonds today is as

    gemstones used for adornment. This usage dates backto ages

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    Historical Significance of Diamond.. Diamonds are thought to have been first recognized and

    mined in India

    Major deposits of the stone were found along the riverslike Godavari, Krishna.

    Diamonds have been known in India for at least 3000years but most likely 6000 years

    Diamonds quickly became associated with divinity, beingused to decorate religious icons

    They were believed to bring good fortune to those who

    carried them. Ownership was restricted among various castes bycolor, with only kings being allowed to own all colors ofdiamond

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    Properties related to diamond.. The characteristics related to the diamond can be

    explained in the terms of..

    Gemological Properties ( 4C)

    Material Properties

    Diamond is the hardest known natural material

    They are found inside the earth in the alluvial deposits

    Diamonds are then mined with the help of differentprocesses like kimberley etc..

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    4Cs of Diamond 1. Cut :

    Diamond cutting is the art and science of creating agem-quality diamond out of mined rough

    The cut of a diamond describes the quality ofworkmanship

    Round Brilliant Cut, Tolkowsky, Genesis cut etc.. aredifferent types of cuts

    The cut increases polishing and thereby luster of the

    stone

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    4Cs of Diamond continued Color :

    A chemically pure and structurally perfectdiamond is perfectly transparent with no hue, orcolor

    The color of a diamond may be affected bychemical impurities and/or structural defects inthe crystal lattice

    The GIA has developed a rating system for color in

    white diamonds, from "D" to "Z" (with D being"colorless" and Z having a bright yellow

    coloration)

    The GIA system uses a benchmark set of naturaldiamonds of known color grade

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    4Cs of Diamond continued Carat :

    The caratweightmeasures the mass of adiamond.

    One carat is defined as 200 milligrams (about0.007 ounce).

    The pointunitequal to one one-hundredth of acarat (0.01 carat, or 2 mg)is commonly used fordiamonds of less than one carat

    A weekly diamond price list, the RapaportDiamond Report is published by Martin Rapaport,

    It is currently considered the de-facto retail price

    baseline.

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    4Cs of Diamond continued Clarity :

    Clarity is a measure of internal defects of adiamond called inclusions

    The number, size, color, relative location,orientation, and visibility of inclusions can allaffect the relative clarity of a diamond

    There are various clarity standards as VVS1, VVS,VS1, VS, S1etc..( where VVS1 being the best)

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    Scientific Properties Luster :Admantine

    Molecular Weight :12.01u

    Crystal habit : Octahedral

    Refractive Index : 2.415-2.418 Fracture : Conchoidal

    S.G : 3.53

    Hardness :10(Mohs Scale)

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    Global birds Eye view on Diamond The global gems and jewellery industry is estimated at

    146 billion USD at retail prices in 2005.

    The industry has grown at an average compoundedannual growth rate of5.2% since 2000

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    Continued

    Diamond studded jewellery is the largest segment of thisindustry(2005 sales esimated at USD 69 Billion).

    It has grown at CAGR of5% in the last 5 years

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    Global diamond jewellery.. Diamond jewellery has been growing at an average of

    5% from the last 5 years

    The growth is attributable to 2 factors

    Strong economic growth in key consumer nations

    Aggressive marketing effort by large diamond cos..

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    U.S leads the way

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    Continued..

    Value addition at the two ends of the value chain is thehighest with interim segments adding lower values

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    Global diamond value chain In order to understand the nature and to do structured

    analysis ,the diamond industry is divided into 3 majorvalue addition areas

    Sourcing of stones : Refers to upstream end ofvalue chain like Mining, Extraction, and Processing

    Jewellery Fabrication : This stage involvesdiamond studded jewellery Fabrication

    Diamond retailing : This stage covers variousactivities related to the retailing of the product.

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    Global mining Destinations. The majority of global mining for diamond takes place in

    African countries like South Africa, Botswana, Angola,Namibia and U.S, Australia, Canada etc..

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    Global Rough Production.. In value terms the World Diamond rough production

    stood at 12.7 billion USD

    The rough in volume terms has grown at a healthy rateof 31% between 2002 to 2005 totaling to 171 millionCarats

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    Sourcing and Trading

    This stage in the diamond value chain has been non-transparent and discreet.

    But now a days ,due to more professional players,financial reporting , consolidation among the playershas led to change in the manner in which it wasoperated.

    The current industry has 4 diffferent channels whereeach player can add value as..

    Centralized distribution

    Direct Selling

    Rough Trading

    brokerage

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    The processing stage (Cutting and Polishing) The mined diamonds are known as rough diamonds

    Processing in essence means cutting and polishing of the roughdiamonds

    Cutting refers to sizing of the diamond to maximise its yield

    and refraction of light While Polishing refers to act of finishing facets to enhance the

    Brilliance of the stone.

    The diamond Cutting and Polishing industry is facing a lot ofcompetition and is estimated at 19.3 billion USD

    The art of processing is seemed to have originated from Indiaand India is ranked 1st in global diamond processing industry

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    Continued

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    Role of De Beers

    De beers is the largest diamond mining company in theworld

    The co was founded in 1988 and is based inJohanasburg, South Africa..

    The De Beers currently holds 40% of the worldsDiamond mines by value

    The co produces and controls hugh reserves of diamondmines

    The Sales and marketing arm of De Beers is a companycalled DTC (Diamond Trading Company)

    DTC sells around 45% of the worlds rough by value tothe worlds leading Diamondtaires called as Sightholders

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    DTC continued..

    These sightholders are selected on the basis of theirability to add value to diamond, their adherence to DTCrules and Diamond Best Practices Principles..

    It operates with a punchline A Diamond is Forever

    DTC in India operates with 4 different brands likeNakshtra, Arisia, Asmi, and Sangini..

    Its campaigns show diamond as a symbol ofcommitment, love, regality, mystique ness have beenhighly successful in creating high recall value for the

    brand

    DTC in last 10 years helped Indian market to getconsolidation

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    What's moving the market..

    Growth in the diamond jewellery sales have renownedinterest in diamond mining deposits.

    As per Diamond Facts 2005(Diamond industry Report-Northwest Territories Canada) total expenditure ondiamond exploration in 2004 was estimated to be around$300 million

    Out of two-thirds were invested by industry majors likeDe beers, Rio tinto, Alrosa and BHP Billiton

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    INDIAN PERSPECTIVE OF DIAMONDS..

    Diamond and jewellery has been part of Indiancivilization from since its recorded history

    But the real growth has been from last 2 decades

    In 1966 the export turnover of the industry was just 220million which has now grown to 15 billion in 2005-06

    It is now contributing to the 18% of the indian exportsand securing healthy foreign exchange

    Indian Gems and jewellery is now backed by full fledgedgovt agency called Gems and Jewellery export promotioncouncil (GJEPC)

    There are some far reaching changes expected in indiangems and jewellery sector

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    Indian gems and jewellery Industry

    Indian gems and jewellery has grown rapidly inconsumption terms (CAGR of10% in last 5 years)

    As per 2005 figures it is estimated at USD at 12.17Billion

    It is estimated to grow at 7.64% to reach to 13.1 USDBillion in 2006-07

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    Diamond mining Destinations in India..

    Golconda in A.P has the distinction of being the 1st

    diamond mining site India

    It has large reserves of diamonds even today

    In rest of India, diamond mining is done in Orrisa, U.P,Chattisgarh, A.P, Karnataka etc,..

    India's known diamond reserves are currently estimatedat 4580336 carats as per country's National MineralSurvey

    Some 84000 are to be sold every year

    Kimberley Process is followed while exploration is done

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    Indian Diamond CPD Industry

    India is largest player in the diamond processingindustry ,processing over 57% of worlds rough stock ofdiamond by value

    In volume terms it accounts for almost 92% of worlds

    rough cutting and polishing(11 out 12 diamonds in theworld are processed by india)

    Indias exports of cut and polished diamonds are stoodat USD 11.8 Billion in 2005 and around USD 12.5 billionin 2006

    The majority of the cutting and polishing in india is done

    in Surat, Mumbai and jaipur In the face of severe competition the CPD industry is

    likely to consolidate and integrate vertically as well ashorizontally

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    Indias Presence in gems and jewellery value chain

    Mining Processing fabrication consumption

    Diamond

    Gold

    Platinum

    others

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    The share of CPD in 2010 and 2015..

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    Estimations of 2015

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    Export destinations for polished diamonds by

    value..

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    Indias diamond jewellery market

    India is one of the worlds fastest growing market fordiamond jewellery

    As per DTC, the diamond jewellery market is estimatedat USD 1.5 billion ( Rs. 6600 crores industry)

    Demand for diamond jewellery in India is grown at aCAGR of 43.5% in last 5 years

    In last 3 years in a row, it is the fastest growing in theworld with average of 20% plus growth..

    As per estimates the global diamond jewellery isexpected to be of USD 75 billion and USD 95 billion by2015

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    The pie in indianG&J trade

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    Major players in the market..

    Company Owner Key highlights

    Asian Star co Ltd Shah and kothari Profits in the range

    $5 million per yr.Highest exporteraward by DTC

    Saushish DiamondsLtd.

    Ramesh kumarGoenka

    Largest Diamond co.T.O around $200million.100% export

    oriented unitSui Raj DiamondJewelllery Ltd

    Sui Raj group 5TH largest in india.T.O of $200 million.exports of processeddiamonds

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    Continued

    Hindustan Diamondco.

    50:50 joint venturebet govt of India andDe Beers

    2nd largest diamondco in India.

    Vaibhav GemsLtd(VGL)

    Professionallymanaged businessorganization

    T.O $40 million in2005..major exporterof many high qualitygems

    Shrenuj and Co ltd. Shrenuj and Co ltd. T.O of $150 million.Large exporeter ofdiamonds.Sightholder of DeBeers.

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    Continued..

    gili Gitanjali group One of the largestdiamond groups inIndia. Niche player in18 carat brandeddiamond jewellery.Tie ups with severallifestyle stores

    Intergold Rosyblue which isworlds largestdiamiond

    manufacturing co

    Largest diamondretailer in india. 24exclusive showrooms

    across various cities.finest designs andquality.

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    Indian States and Their performance

    Indian states show variable performance when it comesto diamond market.

    Among the different Indian states ,Maharashtra, Gujarat,and Andhra Pradesh are leading in total diamond

    consumption.

    In an Industry of $1.5 billion USD (6600 crores),morethan 50% is accounted for in these states.

    Other states like Rajasthan, Karnataka, Delhi are catchinup well to drive the growth seen in last few years.

    A lot of the demand is attributed to increasing per capitaincome, changing lifestyles, consumption drivenbehavior.

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    How is the Pie divided in the states

    Name of the state % share in the total diamondmarket

    1. Maharashtra 20%

    2. Gujarat 17%

    3. A.P 14%

    4. Karnataka 11%

    5. Rajasthan 8%

    6. M.P 5%

    7. Others25%

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    How The Pie Looks

    Maharashtra

    Gujarat

    A.P

    Karnataka

    Rajasthan

    M.P

    Others

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    The Demand Forecast Analysis..

    While making a demand forecast for the 6 Indian stateswe assume that Quantity demanded is equal to quantitysold..

    Indias GDP in the last 5 years is averaged at 8%

    While the diamond industry in India has grown at ahealthy rate of 20% p.a in the same period.

    So, we get a common multiplying factor as calculatedbelow..

    Diamond % growth = Indias GDP x common

    multiplying factor20% = 8% x 2.5

    So, the CMF = 2.5

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    Demand Forecast for Indian States..

    Name ofIndian state

    ProjectedGDPgrowth(2007-2012)

    Demand forecastof diamond salesgrowth in %

    Maharashtra 9.5-10% 24-25%

    Gujrat 9-9.5% 21-23%

    A.P 8.5-9.5% 20-22%

    Rajasthan 6-7% 15-17%

    Karnataka 8-9% 18-20%

    M.P 6-7% 15-17%

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    Continued

    Name ofIndian state

    Present salesin crores

    Growth %forecast

    Projectedsales incrs(2007-08)

    Maharashtra 1300 24-25% 1650

    Gujarat 925 21-23% 1150

    A.P 900 20-22% 1300

    Rajasthan55

    015

    -17% 630

    Karnataka 720 18-20% 875

    M.P 300 15-17% 350

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    Roadmap for the future..

    The future of the industry is quite promising but thesector is facing competition from gradual decrease in theplain jewellery.

    Competition from consumer durables has become a

    major threat

    Shrinking margins and shortened fashion cycles haveadded to the concerns

    A way ahead is to tap the latent markets , use oftechnology, aggressive marketing policies, Anticipation

    of fashion cycles and new product offerings will definitelyhelp to boost the demand.