Sovereign Diamonds Ltd Management Discussions

Industry Structure and Developments:

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:

India ranks as the worlds second-largest consumer of gold jewellery, owing to the unparalleled cultural and religious significance of gold in the country. Gold holds deep roots in Indian traditions, making gold jewellery an indispensable part of ceremonies and festivities. Indian households possess substantial quantities of gold in various forms such as jewellery, coins, and bars. The gold market has rapidly evolved in recent years, largely due to shifting demographics. Weddings and festivals continue to play pivotal roles in driving demand for Indian gold jewellery, with bridal jewellery alone capturing a significant market share and contributing 55% to the total jewellery demand. Furthermore, amidst current macroeconomic volatility and geopolitical tensions, gold is widely acknowledged as a secure and effective hedge against inflation and global economic downturns.

? Gold:

The total gold investment demand in India increased by 7% to 185.2 tonnes in 2023, up from 173.6 tonnes in the previous year. Investment in bars and coins rebounded, rising by 7% YoY to 185 tonnes. During October-December 2023, demand surged to 67 tonnes, surpassing the five year quarterly average by 64%.

? Domestic Jewellery Industry updates demand:

Market Size

According to the World Gold Council (WGC), Indias overall gold jewellery demand declined 6% to 562.3 tonnes in 2023 compared to 600.6 tonnes in 2022, due to elevated gold prices, which dampened consumer enthusiasm. The price of gold was volatile throughout 2023. The average global gold price reached a record high of USD 1,940.54 per ounce in 2023, marking an 8% increase from the previous year. India experienced a sharp rise of 15.8% in its average gold price for 2023, reaching a new record of Rs. 59,130 per 10 grams. Domestic gold prices surged to all-time highs, reaching Rs. 66,529 per 10 grams in March 2024. The robust pricing trends in 2023 led to a preference for lighter-weight or lowercarat jewellery items and a decrease in the overall volume of gold jewellery purchased. Additionally, the higher profit margins associated with gem-set and 18k jewellery further fuelled this transition.

? 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

? Opportunities and Threats & Risks and Concerns:

Opportunities

The burgeoning young middle-class population, the rise of dual-income households and increasing disposable income have spurred higher expenditures on luxury items such as high-quality, branded jewellery. Additionally, gold, a symbol of wealth and prosperity deeply ingrained in Indian culture and ceremonies, ensures sustained demand. Threats & Risks and Concerns Gold Price

The recent sharp increase in gold prices has influenced gold consumption demand, primarily in jewellery, constituting approximately three-quarters of total consumption in India. Consumer interest in gold, gems, and jewellery might weaken amid high inflation and economic slowdowns in major markets. Sluggish demand in the international and domestic markets may lead to a decline in exports.

Unorganized Sector

The Indian gems and jewellery industry is highly fragmented and unorganised. The industry is majorly dominated by small, family-operated jewellery shops that have been established for years. Many customers favour these local shops due to typically higher prices in the organised market, posing a challenge to the growth of the organised sector.

Lab Grown Diamonds

lab-grown diamonds have emerged as a compelling alternative to their earth mined counterparts. One of the primary attractions of lab-grown diamonds is their comparatively lower price point. This affordability factor has resonated with a growing segment of consumers seeking high-quality diamond jewellery without the premium associated with earth mined diamonds.

? Discussion on financial performance with respect to operational performance:

• Total net sales for the year were Rs. 2,709.34 Lakhs as compared to Rs. 2,780.73 Lakhs in 2022-23.

• Total Profit / Loss before tax for the year was Rs. 167.99 Lakhs as compared to Profit Rs. 192.78 Lakhs in 2022-23.

• The Company has repayment of GECL facilities of Rs. 81.35 Lakhs.

• The Company has reduced its bank borrowing.

? Outlook:

The outlook for the Indian gems and jewellery industry is positive, with anticipated ongoing shifts in consumer purchasing behaviour transitioning from the unorganised to the organised sector. According to industry estimates, the jewellery market will grow at a steady 15-16% CAGR, aiming for USD 145 billion by FY 2027-28.

? Internal Control Systems:

Your Company maintains an adequate and effective Internal Control System commensurate with its size and complexity. We believe that these internal control systems provide, amongst other things, a reasonable assurance that transactions are executed with Management authorization and that they are recorded in all material respects to permit preparation of financial statements in conformity with established accounting principles and that the assets of your Company are adequately safeguarded against significant misuse or loss

? Material developments in Human Resources / Industrial Relations front, including number of people emploved:

• The Company places a strong emphasis on training and skill development initiatives to enhance employee capabilities and consistently engage its workforce. The Company regards its human resources as its most valuable asset and acknowledges their pivotal role in the Companys growth journey. The Company advocates for equal opportunities and encourages competitiveness to unlock the full potential of its workforce.

• The Company has increased its employee strength from 36 employees to 38 employees.

> Kev 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:

Ratio	Numerator	Denominator	FY 2023 24	FY 2022-23	Reasons for Variance
a) Current Ratio	Current Assets	Current Liability	1.90	1.79	-
b) Debt Equity Ratio	Borrowings + Interest Accrued	Total Equity	0.68	0.82	-
c) Debt Service Coverge Ratio	Net Profit after Tax + Depreciation + Interest + Loss on Sale of Fixed Assets	Debt Service = Interest & Lease payments + Principal Repayments	1.32	1.98
d) Return on Equity Ratio	Net Profit after Tax	Average Shareholders Equity	0.10	0.09
e) Inventory Turnover Ratio	Cost of Goods Sold or Sales	Average Inventory (Opening Inventory + Closing Inventory) /2	1.43	2.09
f) Trade Receivables Turnover Ratio	Net Credit Sales	Average Accounts Receivables	3.07	3.74
g) Trade Payable Turnover	Net Credit Purchases	Average Trade Payables	12.69	8.85
h) Net Capital Turnover Ratio	Net Sales	Working Capital	2.13	2.31
i) Net Profit Ratio	Net Profit	Net Sales	0.06	0.07	-
j) Return on Capital Employed	Earning before Interest and Taxes	Capital Employed	0.18	0.20
Sr. No. Ratio	Numerator	Denominator	FY 2023 24	FY 2022-23	Reasons for Variance
k) Return on Investment/ Net worth	Net Profit after Tax	Total Equity	0.08	0.09
l) Operating Profit Margin (%)	Earnings before Interest and Taxes	Net Sales	11.06	11.67
m) Net Profit Margin (%)	Net Profit	Total Revenue	5.91	6.63	-

? Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof :

As noted above the Return on Net worth has decreased from 0.09% to 0.08%.

	For and on behalf of the Board of Directors For Sovereign Diamonds Limited
	Ajay Gehani	Arundhati Mali
Place: Mumbai	Managing Director	Whole Time Director & CFO
Date: 14th August, 2024	DIN:00062989	DIN:08353618