Indian Wedding Boom Puts Lab Grown Diamonds in Limelight. 5 New Entrants to Watch Out For...

Did you know that India is the largest wedding destination globally, with 8-10 million weddings occurring annually?

The wedding industry is worth an estimated US$ 130 billion, driving substantial consumption, particularly in the jewellery industry.

This large market provides big opportunity for lab grown diamonds (LGDs). Jewellery plays a crucial role in Indian weddings, with bridal jewellery contributing to 50-55% of the industry's revenue.

Today's new-age couples are more aspirational than those from previous generations. They desire a lavish wedding, viewing it as a once-in-a-lifetime event.

However, wedding inflation has become significant, leading the couples to find ways to save costs without sacrificing the grandeur of their celebration.

This is where lab-grown diamonds come into play...

LGDs are 70-80% cheaper than natural diamonds on a per-carat basis, making them attractive for budget-conscious couples.

This price difference allows consumers to buy larger, higher-quality stones. The lower price of LGDs has opened up a new category of affordable diamond jewellery.

The Indian government is also actively promoting LGD manufacturing through initiatives like zero import tax on LGD seeds, power subsidies, interest subventions, and capital support for equipment purchases.

India is the second largest LGD producer globally, with a 20-25% market share.

LGDs are gaining global acceptance, particularly in engagement rings. In the United States, LGDs hold a 10% share of the diamond engagement ring market, illustrating their growing popularity.

While the B2C market for LGDs in India is still nascent, the increasing awareness and acceptance of LGD jewellery in India suggests potential for growth, particularly during the wedding season.

The shift from unorganised to organised jewellery retail, due to a preference for transparency, benefits organised players.

These established players could potentially drive LGD adoption as the market evolves.

Keeping that in mind, here are 5 new entrants in LGD market to watch out for...

#1 Titan Company

First on the list is Titan Company, a leading player in the Indian lifestyle industry, offering a wide range of products across various categories including jewellery, watches and wearables, eyewear, fragrances and fashion accessories, and Indian dress wear.

The company also holds a minority stake in CaratLane. One of the key strengths of the company is its brand portfolio. Titan owns several well-known and respected brands in the Indian market, such as Tanishq, Mia, Zoya, CaratLane, Fastrack, and Sonata.

Coming to Titan's financials, the company boasts a 5-year average return on equity (ROE) of 26.5% and a 5-year sales compound annual growth rate (CAGR) of 20.9%. This growth was achieved on the back of a strong consumer demand for luxury items such as high-ticket jewellery.

Similarly, the Tata group company's net profit has grown astonishingly at a CAGR of 54% over a 3-year period and 20% over a 5-year period.

The stock is currently trading at a price to earnings ratio (PE) of 95.

These high valuations combined with the recent slowdown in consumer demand have resulted in a lacklustre stock price performance.

Here's how the stock price has performed in the past 1 year.

Now, talking about Titan's venture into the LGD segment, while

the company is currently not actively present in the LGD segment, it has invested in Great Heights, an American LGD company that owns the brand Clean Origin.

This investment was driven by Titan's desire to understand the dynamics of the US LGD market, which is the most developed and fastest-growing market for LGDs globally.

The investment aligns with Titan's broader strategy of carefully monitoring the LGD sector.

The company's management feels that LGD is a potential disruptor to the jewellery industry in the medium to long term, with the possibility of impacting the market in the next three to five years.

Titan wants to gain firsthand knowledge of consumer preferences and purchasing behaviour in the US LGD market. This includes understanding the target audience, pricing dynamics, and marketing strategies.

Titan is viewing its investment in Great Heights/Clean Origin as a learning opportunity. The company is using this investment to gather valuable insights into the LGD market before making any significant strategic decisions regarding their own entry into the segment.

The management has said that whenever Titan chooses to enter this segment, it will be confident to more than make up for the time spent away from the LGD market, given its historically successful track record in the jewellery segment and its investment in Clean Origin.

For more details, check out Titan's financial factsheet.

#2 International Gemmological Institute (India)

Coming second on the list is International Gemmological Institute (India) (IGI), an independent certification and accreditation services provider for diamonds, studded jewellery, and coloured stones.

The company recently listed on stock exchanges on 20 December 2024.

Coming to its financial performance, between the years 2021 and 2023, the company's revenue from operations grew at a CAGR of 32%.

The company's certification services are a major revenue driver. The contribution of certification services to revenue from operations remained consistently high, reaching 98% in the nine months leading up to 30 September 2024.

Revenue from certification services increased from Rs 3,574.3 million (m) in 2021 to Rs 6,206.8 m in 2023, reflecting a CAGR of 31%.

Meanwhile, the profit after tax rose from Rs 1,715.3 m in 2021 to Rs 3,247.4 m in 2023, demonstrating a robust CAGR of 37% over the period.

This growth is largely attributed to the company's strong position in the expanding market for laboratory-grown diamonds. IGI holds a dominant 65% share of the global market for certified laboratory-grown diamonds.

The company has an experienced management team and the strategic support of Blackstone, a globally recognized investment firm.

IGI operates under the "IGI" brand in India. It plans to increase market share in the certification of diamonds, studded jewellery, and coloured stones, including lab-grown diamonds.

The company also has plans to expand its global laboratory network and build brand awareness.

It is worth noting that IGI was the first among its global peers to issue certification reports for laboratory-grown diamonds globally in 2005.

Looking ahead, IGI is commissioning a new 214,159 sq. ft. facility in Surat, India, expected to be completed in 2025. This facility will support IGI's business operations for lab-grown diamonds, natural diamonds, studded jewellery, and coloured stones.

Here's how the stock price has performed since its IPO.

For more details on its financials, check out International Gemmological Institute's financial factsheet.

#3 Sky Gold

At number three comes Sky Gold, a Mumbai-based jewellery company that designs, manufactures, and markets gold jewellery. The company specializes in lightweight 22-carat and 18-carat jewellery.

Sky Gold primarily operates as a business-to-business (B2B) manufacturer for corporations and distributors. 65% of its business comes from corporate clients, and the company aims to increase that share to 100% over the next three years.

Coming to its financials, Sky Gold has shown 5-year sales CAGR of 16% and a 3-year sales CAGR of 29%. Similarly, its net profit has grown astonishingly at a CAGR of 100% over a 3-year period and 67% over a 5-year period.

This strong financial performance was driven by several factors, including the expansion of its portfolio into higher-margin categories such as 18-carat and diamond-studded jewellery.

The company has strategically decided to enter the diamond-studded jewellery segment driven by the high demand for such products, particularly in the lightweight category where Sky Gold is the market leader.

Its gross margins in export markets are slightly better than domestic margins, where the company is seeing strong growth.

Sky Gold has been working to reduce its reliance on working capital loans, transitioning to 80-90% gold metal loans at lower interest rates.

This transition is expected to meaningfully impact interest costs in the coming quarters and drive PAT margins.

Due to such an exponential rise in profits and upcoming positive triggers, the stock price has been on a roll.

Here's how the stock price has performed in the past 1 year.

Sky Gold is planning to enter the lab-grown diamond jewellery segment sometime after the fourth quarter of FY25. The company's management has said that the lab-grown diamond jewellery market represents an attractive opportunity.

In addition to the company's plan to enter the lab-grown diamond segment, Sky Gold has successfully raised Rs 2.7 billon (bn) in capital in November 2024 to support its growth plans.

It has acquired two subsidiaries, Starmangalsutra and Sparkling Chains in September 2024. The company has expanded its manufacturing capacity by moving into a new 81,000 square foot facility in August 2023. As of November 2024, capacity utilisation at the new facility was 40%.

Sky Gold's management has not yet provided specific revenue guidance for the lab-grown diamond segment. The company is still in the planning stages for entering the segment.

However, the overall FY25 revenue guidance is given at Rs 33 bn, which includes Rs 27 bn from the parent company and Rs 6 bn from the two subsidiaries that were acquired in September 2024.

It will be interesting to see how the company incorporates LGD in its newly entered diamond-studded jewellery segment.

For more details on its financials, check out Sky Gold's financial factsheet.

#4 Renaissance Global

Fourth on the list is Renaissance Global, a global jewellery company that designs, manufactures, distributes, and markets branded and private label jewellery. The company was founded in 1989 and is headquartered in Mumbai, India.

Renaissance Global's business is divided into three segments: "Our Brands" which are direct-to-consumer brands, "Licensed Brands", and "Customer Brands".

"Our Brands" segment consists of the company's own direct-to-consumer brands. This is a relatively new segment for Renaissance Global, having started a couple of years ago and now generating around Rs 2 bn in revenue.

One of the key growth drivers for this segment is the increasing acceptance of lab-grown diamonds in the US. The company also plans to expand its "Our Brands" segment internationally.

"Licensed Brands" is a significant part of Renaissance Global's business. The company has seven licensing agreements with global brands. One key advantage in this segment is the company's exclusive licensing arrangement with Disney, which provides a competitive edge due to the brand's global recognition.

Currently, lab-grown diamonds are a small part of the licensed brands segment, but the company expects this to grow in the future.

Finally, the "Customer Brands" segment involves manufacturing jewellery for large retailers. This segment has remained relatively stagnant in recent years and is characterised by low ROE and ROCE.

Although the company still operates in this segment, its strategic focus is shifting towards the high-margin "Licensed Brands" and "Our Brands" segments.

Coming to the company's financials, its sales have remained stagnant with 1% CAGR over 3 years but profit after tax has grown at a CAGR of 19%. This dichotomy in the top line and bottom line is due to the strategic transformation that the company is going through.

It is shifting its focus from the low-margin "Customer Brands" segment to the higher-margin "Licensed Brands" and "Our Brands" segments.

Looking at the stock price, the market also seems to be recognising this strategic transformation.

Here's how the stock price has performed in the past 1 year.

This transition has had a significant impact on the company's financial performance over the past 3 to 5 years.

The year-on-year decline in revenue in FY24 was primarily due to the challenging macroeconomic environment and the company's strategic decision to exit the plain gold business as it shifts its focus away from this low-margin business.

The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) margins have shown improvement in recent quarters, driven by operational efficiencies and the growth of the higher-margin "Our Brands" segment.

Looking ahead, Renaissance Global has identified the growing popularity of lab-grown diamonds as a significant opportunity and has implemented a multi-pronged strategy in this segment.

The company's approach focuses on leveraging LGDs to drive growth in its "Our Brands" and "Licensed Brands" segments while mitigating the risks associated with the volatility of LGD prices.

Instead of entering the manufacturing of LGDs, it has strategically chosen to focus on building brands around customer preferences using LGDs. The company recognises that the manufacturing of LGDs is a highly competitive and price-sensitive field.

It hosts a marketplace on its website, featuring numerous manufacturers and suppliers of LGDs. This platform allows Renaissance Global to offer a wide range of LGD products while benefiting from the expertise of its suppliers and avoiding holding significant LGD inventory.

The company plans to introduce LGDs in its Irasva stores in India. LGDs were launched in Irasva stores on 1st July 2024, with the aim of tapping into the growing demand for LGDs in the Indian market.

The company's D2C business, which is significantly exposed to LGDs, is projected to grow in the mid-30s in FY25.

Renaissance Global is confident that the transition to LGDs, along with its focus on branding, will contribute to margin expansion and enhance its overall financial performance. It has set a target to achieve double-digit EBITDA margins and it aims to become a zero debt company by FY26.

For more details, check out Renaissance Global's financial factsheet.

#5 Mini Diamonds

Fifth on the list is Mini Diamonds.

The company is involved in manufacturing, import, export, and trading of both natural and lab-grown diamonds and jewellery. Its expertise extends from sourcing raw diamonds to producing polished diamonds, and crafting exquisite jewellery.

Talking about its financial performance, the company has shown 5-year sales CAGR of 17% and a 3-year sales CAGR of 128%. Similarly, its net profit has grown at a CAGR of 149% over the past 3-years and at a CAGR of 31% over the past 5-years.

Do note that these growth rates are on the back of a very low base and the profit margins are very thin and volatile. The promoter holding has also fallen drastically to 5.13% in October 2024 from 34.65% in March 2024.

Here's how the stock price has performed in the past 1 year.

Looking ahead, Mini Diamonds is strategically expanding its operations into the lab-grown diamond segment to capitalise on the burgeoning global demand for sustainable and ethical jewellery.

It plans to leverage its expertise in diamond processing and jewellery manufacturing to create a range of lab-grown diamond jewellery that caters to diverse consumer preferences.

The company will focus on innovative designs that highlight lab-grown diamonds' unique beauty and value while ensuring affordability and ethical sourcing practices.

It has formed a strategic partnership with Parasmani Inc., a Canadian wholesale jewellery company, to enter the Canadian lab-grown diamond jewellery market.

The partnership leverages Parasmani's extensive network and over a decade of experience in the Canadian market to boost Mini Diamonds' sales in the region.

Mini Diamonds recently announced the successful completion and shipment of 2,000 lab-grown diamond-studded gold jewellery pieces to Parasmani Inc., a Canadian wholesaler.

This accomplishment signifies the company's ability to fulfil large orders with high quality and reliability, bolstering its credibility in the North American market.

For more information, check out Mini Diamonds financial factsheet.

Conclusion

Investing in lab-grown diamond (LGD) stocks presents a potentially lucrative opportunity, driven by the increasing consumer preference for sustainable and affordable diamond alternatives.

However, this emerging industry is not without its risks.

The price of LGDs has experienced significant declines due to increased global manufacturing capacity. This volatility can impact profitability and pose a risk to companies holding substantial LGD inventory.

The LGD market is becoming increasingly competitive, with new entrants, including large players like Tata, vying for market share.

Additionally, some of the stocks discussed here have seen declining promoter holding over the recent quarters, often a signal for some negative surprises in the future.

Therefore, it's important to conduct thorough research on financials and corporate governance before making investment decisions, ensuring they align with your financial goals and risk tolerance.

Happy investing.

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