sovereign diamonds ltd share price Management discussions


> Indian Economy:

There is a fall in demand for polished diamonds from US and China. The auctions in Belgium and Dubai have been cancelled as Indian buyers are not keen to participate unless demand goes up.

? India:

The year 2022 was memorable for India as the nation celebrated its 75th year of independence while claiming its place as the worlds fifth-largest economy, boasting a nominal GDP of $3.5 trillion. According to CSO estimates, the Indian economy grew by 7.2%, the fastest among major economies, driven by strong domestic private consumption, government expenditure on infrastructure and a favourable investment climate. Although India, too, faced high inflation, the Reserve Bank of India undertook a series of policy rate hikes to bring it down within its comfort range. Despite the challenges of higher oil prices leading to increased import bills and trade deficits, concerns about the current account deficit and its financing has eased over time

? Gold:

Indias formidable position as the second-largest gold market, where an impressive 70% of the demand is attributed to exquisite jewellery, underscores the immense growth opportunities awaiting the organised retail segment. It is also the third-highest component of retail consumption in India.

? Outlook:

Indias economy has displayed remarkable resilience amidst global challenges, positioning itself as the frontrunner in growth among major economies. The latest economic survey anticipates a substantial GDP growth rate of 6.5% in FY24, further consolidating Indias impressive growth trajectory.

? Domestic Jewellery Industry updates demand:

Market Size

The Indian jewellery retail sector is currently valued at approximately $76.3 billion in FY23 and is expected to grow substantially. This market is expected to grow at a CAGR of 5.54% by 2027. This projection signifies the sectors potential for significant expansion and economic impact in the coming years

The organised retail segment currently holds a share of approximately 35%, featuring prominent national and regional players. In contrast, the unorganised sector, comprising a vast network of over 5,00,000 local goldsmiths and jewellers, dominates the remainder. The organised sector displayed remarkable resilience, bouncing back swiftly and accelerating after the pandemic. This revival was propelled by a combination of factors, spanning both the supply side and the resurgence of consumer demand.

Gems and Jewellery comprises of the following sub-sectors:

• Diamonds

• Gemstones

• Pearl

• Gold, Silver and Platinum Jewellery

India is one of the largest exporters of gems and jewellery and the industry is considered to play a vital role in the Indian economy as it contributes a major chunk to the total foreign reserves of the Country. The Goods and Services Tax (GST) and monsoon will steer Indias gold demand going forward.

• Industry Trend - Diamond Jewellery:

• Increasing demand for precious gem stones: Changing preferences of young people from gold to coloured gemstone, platinum and palladium jewellery

• Multiple occasions for purchase: Women are buying diamond jewellery for occasions other than marriage

• Focus on technology: Emergence of new manufacturing techniques

• Changing demographics impacting demand: Social media is impacting buying preferences too much. Instagram, Facebook etc are influencing the younger generations tastes

• Growth of lab created diamonds: Also known as synthetic diamonds, artificial diamonds, cultivated diamonds or cultured diamonds

• Focus on Quality: Introduction of cumulative FDI (in $) in diamond and gold ornaments between April stricter quality norms and hallmarking

• Opportunities and Threats:

Opportunities

In the coming years, growth in Gems and Jewellery sector would be largely contributed by the development of large retailers/brands. Established brands are guiding the organized market and are opening opportunities to grow. Increasing penetration of organized players provides variety in terms of products and designs. Online sales are expected to account for 1% - 2% of the fine jewellery segment by 2022-23. 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 stabilization of gold prices at lower levels is expected to drive volume growth for jewellers over short to medium term. The demand for jewellery is expected to be significantly supported by the recent positive developments in the industry.

Threats

Fast-changing Fashion Trends

Jewellery being a vital fashion and lifestyle statement, demands the players to be more agile, and responsive to the constantly evolving trends and consumer preferences.

Regulatory Framework

Changes in regulation and stringent compliance may cause temporary blip in sales during the transition period.

C.V.D. Diamonds

There has been an influx of C.V.D. Diamonds in all the major markets. In the recent past few cases of undisclosed mixing of C.V.D. Diamonds with natural diamonds have been reported. With improvement in technologies year over year, it is getting increasingly difficult to differentiate between the natural and artificial diamonds. The situation is evolving into a major challenge as Consumer confidence has taken a serious blow. Various initiatives are being undertaken by major diamond producers, trade bodies and retailers to increase the awareness about C.V.D. Diamonds and its proper disclosure to boost the consumer confidence. The Gems and Jewellery Export Promotion Council has set up a Natural Diamond Monitoring Committee (NDMC) consisting of representatives from various trade bodies to address this issue. Proper disclosure of C.V.D. Diamonds has been encouraged at all the levels in the value chain. Use of technically advanced equipment for the detection of undisclosed C.V.D. Diamonds has also been increased.

? Highlights of Performance:

• Total net sales for the year were Rs. 2780.73 Lakhs as compared to Rs. 2291.26 Lakhs in 2021-22.

• Total Profit / Loss before tax for the year was Rs. 192.78 Lakhs as compared to Profit Rs. 130.56 Lakhs in 2021-22.

• The Company has repayment of GECL facilities of Rs. 74.93 Lakhs.

• The Company has increased its employee strength from 32 employees to 36 employees.

• The Company has reduced its bank borrowing.

> Key Financial Ratios:

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations 2018, the Company is required to give details of significant changes (changes of 25% or more as compared to the immediately previous financial year) in key sector-specific financial ratios.

The Company has identified the following ratios as key financial ratios:

Sr. No. Ratio Numerator Denominator FY 2022 23 FY 2021 22 Reasons for Variance
a) Current Ratio Current Assets Current Liability 1.79 1.93 -
b) Debt Equity Ratio Borrowings + Interest Accrued Total Equity 0.82 0.80 -
c) Debt Service Coverge Ratio Net Profit after Tax + Depreciation + Interest + Loss on Sale of Fixed Assets Debt Service = Interest & Lease payments + Principal Repayments 1.98 1.64
d) Return on Equity Ratio Net Profit after Tax Average Shareholders Equity 0.09 0.09
e) Inventory Turnover Ratio Cost of Goods Sold or Sales Average Inventory (Opening Inventory + Clsing Inventory)/? 2.09 1.53
f) Trade Receivables Turnover Ratio Net Credit Sales Average Accounts Receivables 3.74 4.34
g) Trade Payable Turnover Net Credit Purchases Average Trade Payables 8.85 8.92
h) Net Capital Turnover Ratio Net Sales Working Capital 2.26 1.91
i) Net Profit Ratio Net Profit Net Sales 0.07 0.06 -
j) Return on Capital Employed Earning before Interest and Taxes Capital Employed 0.20 0.16
k) Return on Investment Net Profit after Tax Total Equity 0.09 0.09 -

 

For and on behalf of the Board of Directors

For Sovereign Diamonds Limited

Sd/- Sd/-
Ajay Gehani Arundhati Mali
Place: Mumbai Chairman & Managing Director Director & CFO
Date: 27th May, 2023 DIN:00062989 DIN:08353618