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ECONOMIC OVERVIEW Global Economy

The year gone by was a mixed year for the global economy. The year began with a fast pace roll out of vaccines by all the major nations. However, despite achieving a reasonable scale, new variants like Delta, Omnicorn etc continued to impact economies across the globe. While the social impact of the pandemic was high, the economic impact of successive waves was relatively muted and the growth momentum largely remained steady on back of accumulated household savings in Advance Economies (AEs), economic reopening, higher vaccination coverage along with continuing accommodative fiscal and monetary conditions. On the flip side, the disruption in global supply chain and surge in demand resulted in inflation surprising on the upside and proved to be more persistent than expected. Consequently, Central banks in AEs took steps to roll back the monetary stimulus and /or raise policy rates.

However, renewed surge of Covid-19 cases in China and slowdown in the growth momentum have resulted in Peoples Bank of China taking measures to ease the financial conditions. The emergence of conflict between Russia and Ukraine and consequent sanctions imposed by major economies has made the outlook on growth and monetary policy uncertain to a certain extent. Out put and investment in advanced economies are projected to return to pre-pandemic trends in 2022 led by successful control on the pandemic with effective vaccination rollout. Global growth is projected to slowfrom an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. Advanced economies grew 5.2% in 2021 and are expected to grow at 3.3% in 2022 and 2.6% in 2023. Emerging economies fared better than advanced economies in 2021 growing at 6.8%. In 2022 and 2023, emerging economies a re expected to grow at 3.8% and 6.6% with India leading the way.

Beyond 2023, global growth is forecast to decline to about 3.3% over the medium term. With a few exceptions, employment and output will typically remain below pre-pandemic trends through 2026. Beyond the immediate challenges of the global tensions and the pandemic, policymakers will have to focus on longer-term goals. The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution. At the same time, economic da mage from the conflict will contribute to a significant slowdown in global growth in 2022 and add to inflation. Multilateral efforts to respond to the humanitarian crisis, prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change, andendthepandemicare essential.

Indian Economy

In India also growth momentum faced some headwinds during the year because of pandemic waves but it recovered well post easing of restrictions. The Central Government announced focused incentives and measures to support the impacted sectors. Financial conditions continued to remain easy as RBI continued with the accommodative stance and ensured ample system liquidity. Post Covid- 19 India has emerged as the strongest economy and is expected to remain the fastest growing economy in the world. During the year India achieved highest ever merchandise export of US$ 617.18 bn. According to the provisional estimates by the National Statistics Office (NSO), Indian GDP is estimated to have grown at 8.7% for FY 2021-22 against a contraction of 6.6% in the previous fiscal. The last quarter of FY 2021-22 witnessed the impact of the third wave and inflationary pressure due to geopolitical conflicts. Country-wide successful vaccination drive enabled to control the losses to human life and have localised restrictions in the impacted regions during thethirdwave.

As witnessed in most other economies, consumer inflation was rising northward in 2021. Retail inflation has been treading above the targeted range of the RBI in January and February 2022 but is expected to see some respite in FY 2022-23. Retail inflation touched 6.95%, the highest in 17 months, and the wholesale price index (WPI) hit 16.55% in March 2022 a mid surging fuel and food costs. Besides inflation, marginal cost of funds lending rate is rising with interest rate tightening. Experts believe that though taming inflationary pressures will be the primary target, growth trajectory will continue to be on the radar of policy makers, especially as recovery post pandemic has been gradualand uneven.

The Union Budget 2022-23 aimed to harness the momentum that has led to India emerging as the fastest-growing large economy. The government is focused on four key pillars of development, namely, inclusive development, productivity enhancement, energy transition and climate action. The government is pushing forward with its citizen empowerment agenda, promising jobs, inclusive development, healthcare transformation and female empowerment. Under PLI scheme, 6 million newjobs are expected to be created in 14 different industries and generate an additional ? 30,00,000 crore revenue. The government wants to promote a digital economy, fintech, technology-enabled development, energy transition, and climateaction.

The growth trajectory in FY 2022-23 is expected to remain steady, mainly led by dynamic reforms undertaken in the past two years, inherent strengths, strong economic fundamentals and growth promising sectors. Continued geopolitical conflicts, high inflationary pressure and renewed coronavirus variants-induced infectious waves pose significant risk to future growth prospects. The percolation of ease of doing business at the factory level is expected to support the economy to cross the US$5 trillion mark by FY 2026-27.

INDUSTRY OVERVIEW

Global Gems and Jewellery Industry

The global gems and jewellery industry which was strongly impacted by the Covid-19 pandemic related disruptions in 2020, witnessed a spectacular rebound in 2021. Every sector of the diamond industry performed very well with significant investments in technology to gain operational efficiency, create marketing and consumer experiences, and accelerate e-commerce schemes. Online sales continued to be a popular medium of sales.

Diamond jewellery sales had decreased 14% and rough diamond sales declined 31% in 2020 because of store closures, wedding cancellations, and travel restrictions. Amidst relaxations in Covid-19 restrictions and fewer experience spending opportunities, 2021 experienced decade-high growth in the personal luxury and diamond jewellery markets growing at 35% and 29%, respectively. Revenue increased 62% in the diamond mining segment, and 55% for cutting and polishing. Diamond demand remained robust throughout 2021, especially in the second half of the year. The first half of 2021 saw robust demand led by Chinese New Year season, Valentines Day and earlier than usual orders by retailers to refill depleted inventories. In the second half of the year, demand grew higherin preparation forthewinterholidayseason.

Pricing growth was also seen led by strong demand for diamond jewellery and depleted inventories. Robust consumer demand and strong balance sheets in the midstream contributed to higher demand for rough diamonds across the entire assortment range.

Main trends that were seen in 2021 were the divergence of lab-grown diamonds from natural-mined diamonds, emphasis on environmental, social, and governance (ESG) agendas, and beneficiation program development. In 2021, African diamond-producing countries renewed beneficiation efforts. As more countries attempt to develop beneficiation programs, related cutting and polishing activities are expected to increase.

Chinese diamond jewellery retail witnessed 19% growth in 2021,6% above pre-Covid-19 level primarily driven by the most successful vaccination program globally. Retailers responded by adding physical stores in lower-tier cities, and increasing focus on online sales. In Europe, diamond jewellery retail only partially recovered in 2021 with 18% growth, 5% below pre-pandemic levels. Though easing Covid-19 restrictions supported the recovery in consumer confidence, a new wave of lockdowns for unvaccinated people during the third quarter slowed the recovery, exacerbated by uneven vaccination rates across European countries. Reduced international tourism, especially from China, a Iso affected the recovery.

Global demand for diamond jewellery and polished and rough diamonds is expected to remain buoyant in 2022 led by a strong holiday season, strengthening consumer confidence in major markets, and limited supply of rough diamonds. The market is expected to return to historic growth pace by 2023-24. In the medium term, demand for diamonds could be affected by government policies surrounding economic stimulus and consumer travel restrictions. In the short term, sales growth may be led by rebound of wedding celebrations with the ease of pandemic restrictions, New Years, Valentines Day, and Chinese New Year sales, and government responses to new waves ofCovid-19.

Indian Gems and Jewellery Industry

The Indian Gems and Jewellery sector, being one of the largest in the world, contributes around 29% to the global jewellery consumption. India is the worlds second largest gold consumer. India is today the worlds largest diamond cutting and polishing centre. Keeping in sync with global market trends, India has been adding modern techniques to its traditional knowhow. Indias gems and jewellery market size was estimated at US$78.50 billion in FY21.

The Gems and Jewellery sector being an employment and export-oriented sector has gained significant importance and position as a powerful economic force. Indias gold and diamond trade contributed-7.5% to Indias Gross Domestic Product (GDP). In FY 2021-22, the Indian gems and jewellery sector with export of around US$39 billion contributed over 9% to Indias overall merchandise exports and is amongst the top 5 exchange earners for the country.

Indian gems and jewellery are exported across continents and is the most preferred country in terms of gems and jewellery export. In FY 2021-22, Indias overall exports of gems and jewellery stood at US$ 39.15 billion, up nearly 55% demonstrating the agility of the gems and jewellery pipeline in adjusting quickly to an uncertain business environment marked by temporary COVID lockdowns and unprecedented demand surges. FY 2021-22 witnessed key developments in the gem and jewellery sector characterised with the proactive initiatives undertaken by the GJEPC and strong support of the Government of India. This includes signing of key trade agreements with UAE and Australia , positive announcements in the Union Budget 2022-23 , introduction of RoTDEP scheme for the entire G&J sector and resumption of prominent physical shows -IIJS Premiere 2021, IIJS Signature 2022 , IGJS Dubai 2021 .among others. Indiastop export destinations for gems and jewellery a re US, Europe, Japan and China. US accounts for nearly one-fourth of the countrys total gems and jewellery export.

Cutand Polished Diamonds

India is a key stakeholder in the market in the global diamond market. Nine out of every 10 diamonds in the world journey through India making it the worlds largest exporter of diamonds. Indian diamonds are universally priced and India has emerged as the largest diamond cutting centre in the world. Led by strong support from the Government, the industry is growing by leaps and bounds. The overall exports of cut and polished diamonds (CPD) during FY 2021-22 stood at US$24.24 billion, up 50.33% as compared to US$16.29 billion in FY2020-21.

Aftersevere lockdowns in 2020, Indias diamond players re-opened to replenish inventories and meet growing demand. Asecond wave of Covid-19 lockdowns temporarily decreased labour availability in first quarter of FY 2021-22 but the shortage was mitigated by vaccinations, migrants returning to work after seasonal kharif sowing and social distancing measures. Cutting and polishing players in India relaunched production in the first and second quarters of 2021 and started actively buying rough diamonds. In 2021, Indian cutters and polishers increased their rough purchases to meet the growing retail demand. Though Chinas jewellery market recovered rapidly, labour shortages and difficulties in accessing rough diamonds due to travel constraints drove up the cost of manufacturing. This has aided Indian players to grab even more market share from manufacturers in China.

Jewellery

In India, diamond jewellery grew 16% in 2021 as compared to 25% decline in 2020 on account of Covid-19 pandemic related restrictions. Lockdowns in the first half of 2021 and a reduced flow of travellers from Gulf countries restrained Indias recovery to some extent. In the second half of 2021, the vaccination rollout reinvigorated consumer confidence. A 57% increase in weddings released pent-up demand for bridal jewellery. However, festive jewellery suffered as two-thirds of major festival celebrations were cancelled during lockdowns. Sales at mom-and-pop shops sharply declined due to customers expectations for heightened safety measures and hallmarking compliance. National and regional organized retailers took the opportunity to expand into tier III and IV cities, driving overall retail penetration.

With rising gold prices, manyjewellers are finding that clients are increasingly responsive to efforts to recycle their unworn pieces and there is growing interest in vintage and antique jewellery. Buyers are investing in "affordable rarities", pieces of design history which are unique and affordable. Customers have also adapted to buying fine jewellery online, including big-ticket items that formerly customers would want to try on before purchasing. The majority of gems and jewellery players have adopted to e-commerce channels and are coming up with innovative digital features to enhance their presence on the digital platform to further increase their consumer base. Players are providing customers access to practically all inventory via video calls, whatsapp conversations, and virtual meetings. According to State of Fashion report by Business of Fashion and McKinsey & Company, global online jewellery sales are expected to grow from 13% to 18-21% of total jewellery sales between 2019 and 2025, amounting to US$60-80 billion.

OUTLOOK

Based on its potential for growth and value addition, the Government declared the gems and jewellery sector as a focus area for export promotion. The Government has undertaken various measures to promote investment and upgrade technology and skills to promote Brand India in the international market. 100% FDI has been permitted in the sector underthe automatic route, wherein the foreign investor or the Indian company does not require any prior approval from the Reserve Bank or Government of India. Custom duty on cut and polished diamond and coloured gemstones has been reduced from 7.5% to 5% and nil respectively. Similarly, the government has reduced import duty for Gold & Silver (from 12.5% to 7.5%) and Platinum & Pallidum (from 12.5% to 10%) to bring down the prices of precious metals in the local market. Many such reforms including the revised SEZ Act, the revamped gold monetisation scheme, reduction in import duty of gold, mandatory hallmarking etc. is expected to help the industry grow. Having recently signed trade agreements with the UAE and Australia, India is poised to gain preferential access for gem and jewellery products in these important growth markets.

The future growth of the gems and jewellery sector is expected to be led by the development of large retailers/brands which are supporting in increasing the share of the organised market. Increasing penetration of organised players provides variety in terms of products and designs. The covid-19 lockdown has made people use digital platforms to perform most of their activities. Online sales are expected to account for 1-2% of the fine jewellery segment by FY 2021-22. Also, the relaxation of restrictions of gold import is likely to provide a fillip to the industry. The improvement in availability along with the reintroduction of low-cost gold metal loans and likely stabilisation of gold prices is expected to drive volume growth forjewellers over short to medium term furtheraided by Governments strang support to the sector.

According toTechSci Research, Indian gems and jewellery market is anticipated to witness robust growth at 8.34% CAGR over FY 2021- 22 to FY 2026-27. The growth is primarily on the back of changing lifestyle, rising disposable income, changing consumer preferences of branded jewellery products, growing urbanization and strong Government support. Other major factors such as product innovation and technological advancements, the introduction of new jewellery segments by market players such as mens jewellery, costume jewellery, lightweight daily wear jewellery, etc., are anticipated to further drive growth. Uncertainty in the availability of rough diamonds post sanctions on Russia, volatility in the prices of rough diamonds, rising inflation and tightening of monetary policies by major advance economies and prolonged slowdown in China could pose challenges for the industry in the short term.

COMPANY OVERVIEW

Established in 1971, Asian Star Company Limited (the Company) is one of the worlds leading diamantaires with a legacy of over 50 years. The Company has earned the reputation of being one of the most prominent and distinguished diamond & jewellery manufacturers globally. Its vertically integrated operations span the entire value chain from rough sourcing to diamond cutting and polishing, jewellery manufacturing to distribution and retailing, which enables it to offer a sound and synergistic commercial proposition.

The Companys operations a re spread across the globe covering major diamond consuming cities, namely New York, Chicago, Antwerp, Dubai, Shanghai, Hong Kong, Bangkok and Singapore in addition to Indian cities of Surat, Mumbai, Ahmedabad, Hyderabad, Hosurand Chennai. The factories, offices and marketing arms are strategically placed at all major manufacturing, trading and consumption centres of the diamond industry. The Company has a talented design and development team to add uniqueness and innovation to its portfolio.

The Company has an arrangement of direct supply of rough diamonds from the leading global mining companies. The Company is an approved manufacturer of the worlds leading retail brands, reiterating its expert craftsmanship and enduring commitment to quality and integrity. In addition, it has received ISO 9001:2015 certification from TUV NORD, Germany and a certified member of Responsible Jewellery Council. Asian Star was ranked 434 in Dun & Bradstreets "Indias Top 500 Companies" in 2022.

Manufacturing FacilityforPolished Diamond

The Company has a state-of-the-art diamond cutting and polishing facility located in Surat, Gujarat spread across a massive 1 lacsq. ft. With over 900 skilled workers, the factory is equipped with latest equipment and technology. For best yields the Company has an extremely skilled production team which is capable of addressing different complexities of diamond cutting. The Company is recognised for its consistency in quality and cut and its products are acknowledged as Asian Star Make in the global industry. It ensures utmost client satisfaction by providing conflict-free natural diamonds specially customized in proprietary cuts as per requirement. The Company boasts of an all embracing portfolio including fine makes in round brilliant in all colours and clarities upto 5 carats, generic fancy shapes, certified diamonds, EX-EX-EX Hearts & Arrows cut, proprietary cuts and Forevermarkand Code of Origin diamonds.

Manufacturing Facility for Jewellery

The Company has three in-house manufacturing facilities - two located at SEEPZ and MIDC in Mumbai, Maharashtra; and one at Hosur in Tamil Nadu, spreading across a total area of 50,000 sq. ft. Annually the overall production capacity of these units amounts to 7,50,000 pieces with a design database of over 30,000. The Company has emerged as the supplier of choice for several reputed jewellery brands and retail chains across the globe. The SEEPZ facility exclusively caters to the international markets, and the MIDC and Hosur units serve the domestic market demand. The Company specializes in bridal, fashion, solitaires ceramic fine jewellery and mens jewellery. It provides market centric concept-based customization which sets it apart from competition. In addition, its superiorquality products are cost competitive due to large-scale and lean manufacturing processes leading to short production cycle.

Distribution

The Company caters to a diverse customer base from jewellery manufacturers to retail chains including e-commerce businesses across major diamond trading and consuming centres in Asia, Europe, USA, Middle East, Australia and South Africa. The Company participates in major international trade shows. For ease of e-commerce businesses it provides various specialised facilities like superior quality product images, promotion material support, back end data support, etc. It also offers consultation on market trends and product customization to all its partners. With its extensive marketing network across the globe the Company has access to information on latest market updates and global design trends, which enables it to better serve its customers and deliver unique products.

Retail

To cater to high-net worth individuals (HNIs) the Company has established a spacious and luxurious couture diamond boutique. It displays exquisite diamond jewellery for its niche clientele with unique collections inspired by nature, art and history. Pret diamond jewellery and customised orders are its unique offerings in addition to bespoke jewellery design consultations.

FINANCIAL OVERVIEW

Consolidated

The growth momentum witnessed in the second half of the previous financial year has continued in the current financial year. The Company has scaled new highs in the F.Y. 2021-22 with Revenue crossing Rs.4,400 crore. The income from operations sawa massive jump of 73.8% to Rs A,422.61 crores in F.Y. 2021-22 from Rs. 2,544.39 crores in F.Y. 2020-21 led by a significant improvement in diamond segment sales. The diamond business revenue (net of intersegment revenue) grew 82.50% to Rs. 3,660.91 crores in F.Y. 2021-22 from Rs. 2,005.98 crores in F.Y. 2020-21 .Jewellery business a Iso posted 41.7% growth in revenue to Rs. 756.81 crores in F.Y. 2021-22 from Rs. 533.92 crores in F.Y. 2020-21. EBITDAforthe business doubled to Rs. 129.97 crores in F.Y. 2021-22 from Rs. 63.57 crores in F.Y. 2020-21. PAT after minority interest grew 46.8% to Rs. 93.83 crores in F.Y. 2021-22 from Rs. 63.93 crores in F.Y. 2020-21. The consolidated net worth of the Company stood at Rs. 1,313.40 crores at the end of the year under review.

The strong performance for the year reflects Companys resilience and quick adaptability to the reality and changing business environment and needs post Covid-19. Companys focus on reshaping its core strengths of manufacturing and marketing has yielded rich dividends.

OPPORTUNITIES

India emerging as partner of choice globally

Being the fastest growing economies with well established repute in the global gems and jewellery industry, India is emerging as the preferred destination for diamond related activities as China faces the brunt of new waves of Covid-19 infections besides growing trend of china plus one policy among major economies across the globe. Ready availability of affordable skilled labour and growing support by the Government can aid the growth of the Indian gems and jewellery sector.

Growing demand for ethically sourced diamonds

Ethical sourcing and sustainability have become major factors in addition to aesthetics for diamond buyers. In addition to further awareness about blood diamonds and the impact of mining on the environment, concerns about sustainability has significant influence on the buying decisions of the customers. This will help big organised players to increase their market share. To guarantee credibility as to the provenance of its goods, the Company purchases rough diamonds directly from top mining companies and also abide by the Kimberley Process guidelines, De Beers Best Practice Principles and Responsible Jewellery Council Code of Practices, further establishing that all its diamonds are conflict free and its business policies are ethical. The Companys strong focus on sustainability has enabled it to emerge as the partner of choice for diamond sourcing.

Demand surge in small towns

Domestic market is witnessing an upswing in demand for diamonds from smaller towns especially tier I and II cities. This rise is attributable to higher disposable incomes, growing affluence, and evolving consumer choices. Postponement of wedding and other occasions due to lockdown has also resulted in growing demand. Increased penetration of social media led by growing use of mobiles and internet has also contributed significantly in increasing the popularity of diamonds in these clusters which otherwise preferred only goldjewellery.

Increased dominance of organized players

Organized jewellery players more often introduce unique and distinctive designs to differentiate their brands. Demand for special cuts and proprietary cuts is increasing.Young customers, generally being brand conscious and emerging market consumers for whom established brands inspire trust and a sense of upgraded lifestyle are driving the branded jewellery segment. In addition, Covid-19 pandemic posed several challenges for the small, unorganized players with respect to financing. In addition, as consumers become more and more conscious about sustainability and environmental preservation, preference for organized players will continue to increase.

Continued proliferation of online sales

Though contained Covid-19 spread has brought customers back to brick and mortar, they continue to use online medium for shopping. Online jewellery buying with use of technology, flexible payment methods, strong Government support and easy returns and delivery, continues to be a popular alterative for customers especially who have limited time given long working hours. Online sales are expected to account for 1-2% of the fine jewellery segment by 2021-22.

RISKS,THREATS&CONCERNS Sanctions on Russia may pose challenges

The US sanctions on Russia post Russia - Ukraine conflict has created lot of uncertainties about supply of rough diamonds from Russia which supplies around 35-40% of the worlds rough diamonds. The supply concerns has led to volatility in the rough prices in the past few months with upward bias. On the other hand the sanctions could affect the demand from the US that consumes 50% of the worlds polished diamonds. However, if the US would view India as the country of origin as the stones are cut and polished here, the risk may be mitigated.

Luxury market spending may face slowdown given high global inflation

The retail landscape is feeling the strain of decades-high global broad-based inflation as a sharp increase in prices of all commodities is prompting most consumers to curb theirspending habit. All the major economies have been tightening their monetary policies and raising the interest rates to tackle the inflation dampening the growth prospects. In second quarter of 2022, major retail chains including Walmart and Target reported steep declines in their quarterly profit due to surging costs of freight and labour as well as consumers trading down to essentials. Luxury category faces sever challenges of slowdown amidst dampening consumer sentiment and lowering disposable incomesat hand.

Slow Demand from China

There is a growing fear of economic slowdown in China amidst rising Covid-19 cases in major cities. China has taken various stringent measures following its zero tolerance policy to curb the cases. This has forced many industries to cut down or stop productions resulting intowage cuts, layoffs and unemployment dampening overall economic environment and consumer sentiments. China is one of the major market for the industry and this has started having impact on the demand and prices.

INTERNAL CONTROLSYSTEMS AND THEIR ADEQUACY

The Company has devised st rang interna l financial reporting and control system for appropriate and accurate recording of financial and operational information and safeguarding its assets. In keeping with the size and nature of its business and complexity of its operations, the Company has included detailed processes, guidelines and procedures in the internal control systems. The systems encompass governance, compliance, audit, control, and reporting, with a strong intent to confirm to compliance of all applicable laws and regulations. The internal control systems are responsible for safeguarding sensitive data, conduct audit process, maintain proper accounting controls, accurate documentation, and monitorall operations. Robust processes ensure resilience and agility of business operations.

Periodic review of the internal control systems by Audit function ensures smooth day-to-day functioning with minimal risk of fraud or any other discrepancies. The findings are reviewed by the Audit Committee of the Board to ensure maintenance of adequacy and effectiveness of internal controls. The Board also monitors the review conducted by the Audit Committee and ensures correction of any variance, as maybe required. During the year under review, no materia l weakness was reflected in the design or operation.

HUMAN RESOURCES

Human capital is the one of the key pillars of strategic business growth and sustainability furthering organisational objectives of growth, agility and increased productivity. To ensure employee satisfaction, the Company offers a safe, conducive, transparent, fair, productive and inclusive work environment. The Company has adopted a robust HR policy framework enabling employees to achieve work-life balance while ensuring professional growth. Open door policy, direct conversations and exchange of ideas between employees and management foster a growth-oriented work culture. Training and skill development programs promote learning culture. Several quality and production workshops help to achieve skill upgradation. HR strives hard to maintain high levels of engagement, consistent performance and an innovative mindset to minimize attrition. Employee satisfaction is ensured through appropriate reward and recognition programmes in addition to sincere appreciation by the management.