Shivam Jewels rating of IND BBB

Ind-Ra assigned Stable Outlook 

India Ratings and Research (Ind-Ra) has assigned Shivam Jewels (SJ) a Long-Term Issuer Rating of IND BBB. The Outlook is Stable. 

Significant Increase in Turnover over FY17-FY20; Growth to Continue in FY21: The ratings reflect SJ’s medium scale of operations, as reflected by the revenue of INR9,108.78 million in FY20 (FY19: INR9,627.90 million). Exports account for more than 70% of the revenue. 

While the firm was only established in FY14, SJ has shown significant improvement in its turnover over FY17-FY20, with a CAGR of almost 16% during this period, owing to the firm’s increasing operations in the high carat and quality diamonds segment, backed by market demand. 

In FY20, however, SJ’s revenue declined by 5% as the cut and polished diamond (CPD) industry was impacted by the COVID-19 outbreak. However, while the exports of the cut and polished diamonds industry fell by 21.64%, the firm witnessed only a marginal contraction in revenue.

The CPD industry had seen a halt in its manufacturing operations in the first quarter of FY21 due to the COVID-19 lockdown; however, SJ had resumed its operations from May 2020.

The pent-up demand from the US, Israel and Hong Kong along with other countries enabled the firm to achieve a revenue of INR5,865.79 million till 15 November 2020 (1HFY21: INR4,025.79 million;1HFY20: INR4,022.17 million). 

The festive season of Christmas followed by the Chinese New Year would help the company recover in FY21. With the company having achieved almost 63% of its FY20 revenue till the second week of November 2020, the agency expects the firm to remain resilient in FY21 and witness only a marginal contraction in revenue. 

The marginal contraction is assumed based on the on-going hostilities between India and China, as Hong Kong has been acting as an ancillary route to meet the demand from China. In absence of this geopolitical issue, the firm is likely to book positive revenue growth in FY21. The management of SJ believes the firm would achieve revenue of over INR1.0 billion if there is no dent in global demand.

The firm, which operates in the midstream segment in the processing chain, booked margins of 4.21%-4.28% during FY17-FY20. During FY20, the company’s margin rose marginally to 4.28% (FY19: 4.21%) due to lower consumable expense relative to the revenue. The return on capital employed was 23% in FY20 (FY19: 31%). 

With the cost-control measures taken by the firm during the lockdown period, such as reducing the salaries of the entire staff and other operating expenses, the firm was able to book operating margins of 5.06% in 1HFY21. Considering these measures, Ind-Ra expects the margins to remain healthy in FY21. 

The overall margins remain constrained by the fact that the firm procures 70% of its raw material i.e. rough diamonds from DTC sight holder, i.e. suppliers who are listed as bulk purchaser of rough diamonds on De Beers Global Sightholder Sales list. This leads to only 30% of procurement via the direct route i.e. via tenders, thus limiting the margin. 

The firm’s overall EBITDA fell to around INR390.09 million in FY20 (INR405.28 million due to the fall in the top-line. With total EBITDA of INR203.79 million achieved in 1HFY21, the agency expects the EBITDA to remain healthy in FY21.