India's Top 4 Lab Grown Diamond Stocks are Ready to Shine

I came across an interesting WhatsApp forward the other day...

It read something like Tata group's retail major Trent foraying into a unique biz... Lab-Grown Diamonds!

That's right!

Due to a changing market preference and sensing the high growth opportunity, a few companies like Trent have turned their interest towards capturing a big slice of the pie early on.

When I say changing market preference, this is what I mean...

The above image shows how the consumer preference is shifting from natural diamonds to lab-grown diamonds or LGDs.

Some of you might argue that the above representation is for the US consumer market and does not relate to India.

Just to put things in context, the global lab-grown diamond market is worth US$15 billion so there's a lot of opportunity for everyone who's able to get the basic economics right.

Reports suggest that after the US, India is poised to become the next key market for these synthetic diamonds and witness a 15-20% annual growth in consumption.

Traditionally, India is considered as a global hub for diamond cutting and polishing. But the trend is changing with shifting consumer preference and India is now becoming a key player in the lab-grown diamond sector.

As mentioned above, Trent and some more companies are taking the big leap early on to capture the market share.

In today's article, we'll look at 3 major companies operating in this space.

Before we move on, please note that there are several small companies that polish diamonds and do wholesaling of the same. But unless you have your own manufacturing and retail unit, it's very tough to compete in this ever-changing consumer preferred environment. It's hard to survive considering the constant price correction as well, but with a strong retail brand, companies can figure out pricing and other complexities.

Anyway, let's look at the 3 major companies operating in this space...

#1 Senco Gold

First on this list is Senco Gold.

The company primarily sells gold and diamond jewellery along with jewellery made of silver, platinum, precious and semi-precious stones, and other metals. It also offers costume jewellery, gold, and silver coins, and utensils made of silver.

With a catalogue of more than 108,000 designs for gold jewellery and more than 46,000 designs for diamond jewellery, the company offers a variety of designs of handcrafted jewellery, most of which are designed and manufactured in-house in collaboration with over 170 skilled local craftsmen in Kolkata and across the country.

The company also manufactures machine-made lightweight jewellery in gold and diamonds and source jewellery from third-party vendors.

Senco Gold has over 136 showrooms which have a total area of approximately 409,882 square feet. It includes 70 company-operated showrooms, and 61 franchisee showrooms spread across 99 cities and towns over 13 states across India.

For the lab grown diamonds business, Senco Gold plans to create a separate business vertical by launching suite of LGD products, luxury leather handbags and perfumes.

The company came out with its IPO last year in July 2023 and since then, it has seen a decent uptick in its share price-

Senco Gold will soon split its shares - one equity share that currently carries a face value of Rs 10 each is expected to be splitt into two equity shares which will then carry a face value of Rs 5 each.

Earlier this week, the company shared a business update for Q2 and the outlook for going forward.

Here are some key takeaways -

• Launch of fresh 15,700 gold jewellery design and 7,400 diamond jewellery design.
• Launch of Marigold fixed and flexi gold plan to derisk customers from gold price volatility and plan their wedding and festive purchase in advance.

The company has guided for launch of 18-20 jewellery showrooms including 10-12 franchisee, out of which 8 showrooms are already launched in the first half of this year.

One key concern is over 60% of its revenue comes from West Bengal. This high concentration is expected to subside as Senco Gold is improving its geographical diversification with increasing number of stores, both owned and franchisee.

Moreover, rising gold prices are expected to support the company's operating margins.

For FY25, Senco Gold has targeted an 18-20% YoY revenue growth considering the festive seasons - Dhanteras, Diwali and Durga Puja.

To know more, check out Senco Gold's financial factsheet.

#2 Goldiam International

Next on this list is Goldiam International.

In a big move to capture market share in this growing industry, Goldiam International is venturing into their own retail store chain for lab grown diamonds.

Not long ago, Goldiam International received purchase orders worth Rs 70 crore from large US retailers for diamond-studded gold jewellery. 80% of these orders are for lab-grown diamond jewellery.

Something interesting happened with Goldiam's stock price recently... in the last one month, the stock witnessed a rise of nearly 88% on the back of healthy results and planned B2C venture in domestic market.

The company aims to be the largest organized retailer of lab-grown diamonds (LGD) in India, leveraging its supply chain and distribution capabilities.

The company has given a growth guidance of 15%-20% with margin guidance at 18%-22%, however investors should be wary as there is always a risk of oversupply in LGD.

Coming to its financial performance, Goldiam International reported a revenue of Rs 1.7 bn, up 38.4% YoY for June 2024 quarter on account of increased wallet share with clients.

Higher taxes offset the increase in other income, with net profit at Rs 220 m (up 27.6% YoY) and margin at 13.3% vs 14.4% (YoY).

During the quarter, the share of lab grown diamond came at 68.3% of revenue vs 32.7% (YoY) in line with the shift in the preference of customers in the key US market.

Realisations were higher on LGD due to high cartage jewellery. Margins were also better in LGD (25% vs 15% in natural diamond) due to backward integration.

The company has a cumulative order book of Rs 2 bn to be fulfilled over 3 to 4 months. This order book excludes online orders.

Goldiam International is turning a new chapter with the planned launch of India retail (B2C) business for LGD (Origem). It plans to open 3 to 5 stores in 3QFY25, mostly in metros to start with on company owned company operated model.

The company is expecting to benefit from the latent demand and lack of any organized nationwide chain in this product.

However, opening stores is no easy task and requires capex, which should be key monitorable for investors.

To know more, check out Goldiam's financial factsheet.

#3 Trent

Third on this list is Trent.

Tata group company Trent has started a brand for LGDs.

The fashion retail company Trent has launched a new LGD brand 'Pome', introducing it in select Westside stores in Mumbai, Bengaluru, Hyderabad and Gurgaon.

The company expects to carve out an LGD jewellery brand through roll out of Exclusive Brand Outlets (EBOs).

Just how Trent disrupted the apparel market with its Zudio stores, it's looking to grow the LGD business in a similar fashion.

According to reports, one-carat solitaire engagement ring is priced at Rs 24,000-29,000 while the same in Pome LGD jewellery will be priced at about Rs 13,000-17,000 a carat.

On an average, the pricing could be at 30% discount to natural diamond studded jewellery and 80-85% discount to high value natural diamond studded jewellery of Rs 5 lakh.

Coming to its stock price performance, shares of Trent have soared over 280% in the past 1 year.

Most of the gains could be attributed to the success of Trent's newly launched Zudio outlets. The stores cater to budget-conscious consumers. The sharp rise in footfalls in these stores have aided to the overall growth of Trent.

A record 203 new stores of Zudio were opened during FY24 while entering 46 new cities during the year.

With the growing demand for apparel from its customers, Trent plans to launch several new labels under its portfolio to ensure wide variety in its stores.

Looking ahead, Trent expects to generate 10% of its sales from its new shopping site, westside.com.

Currently, Westside operates 169 stores across 88 cities, offering a range of branded apparel, footwear, accessories, and home furnishings, primarily through its owned labels.

Previously, Tata Unistore, which manages the e-commerce platform Tata CLiQ, exclusively sold Westside branded products, including clothing, footwear, and home items.

Trent has recently taken a coveted spot in the bluechip Nifty50 index with reports also stating that it may soon enter BSE Sensex.

For more on Trent, check out the below video where Co-head of Research at Equitymaster talks about retailing stocks and whether Trent could continue to fetch steep valuations.

#4 Dev Labtech

Last on this list is Dev Labtech.

The company manufactures polished diamond and lab grown diamond.

It uses microwave plasma chemical vapor deposition (MPCVD) technology to create lab-grown diamonds. Their diamonds have GIA and IGI Certifications.

In FY24, the company generated 99% of revenue from the sale of polished & lab grown diamonds while the 1% came from rough diamonds and jewellery business.

Dev Labtech has a lot of things working in place. The company recently signed a MOU in the Vibrant Gujarat 2024 summit for growth and expansion of lab grown diamond manufacturing, natural diamonds and gems and jewellery sector.

It has proposed an investment of Rs 102 crore and would commence operations from FY26.

The company has also applied for a solar power project of 1,300 KV (DC) in Gujarat Energy Development Agency (GEDA) for captive use for growing lab grown CVD diamond.

Meanwhile, joining the bandwagon of other jewellery retailers, Dev Labtech has launched a new B2B and B2C website www.dlvjewelry.com for sales and marketing.

Going forward, the company's capacity expansion of over Rs 100 crore is expected to support revenue and profit growth.

In the past 1 year, shares of Dev Labtech have gained 33%.

In Conclusion

After a slowdown of almost 3 years, the diamond industry is bouncing back.

The demand for LGDs is expected to shoot up as they're nearly 10x cheaper than natural diamonds and cannot be differentiated with your naked eyes. On top of that, they're eco-friendly.

All being said, a major risk with lab grown diamonds is their sharp fluctuation in prices.

In the past 1 year, the prices of Lab Grown Diamonds are down almost 60%!

In fact, since 2016 the prices have fallen around 80% while prices of natural diamond still remain around the same level.

As consumers increasingly prioritize affordability and sustainability, the demand for lab-grown diamonds is likely to rise.

Investors should keep an eye on this sector as companies in this space continue to innovate and capture market share.

Though price fluctuations are a concern, the long-term potential of lab-grown diamonds could well outshine these short-term challenges, making it a sector worth exploring for forward-thinking investors.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...