US tariffs to erode Indian diamond export revenues, warns Crisil

Business Mayor

04-05-2025

A Crisil Ratings analysis of 43 diamantaires accounting for nearly one-fourth of the industry revenues, has indicated that 10 per cent additional tariff levied by the US, which accounts for nearly a third of Indian natural diamond exports, will exacerbate the impact on Indian diamantaires from already-subdued demand and intensifying competition from lab-grown diamonds diamonds (LGDs), which closely resemble natural diamonds and cost much less. In the milieu, export revenues of diamantaires will decline by 8-10 per cent in fiscal 2026.
That said, calibrated inventory management across the value chain will support realisations, thus helping reduce the decline in export revenues, and limit the erosion of operating margins, helping contain the players' financial leverage and credit metrics.
In fiscal 2025, the export volumes of natural diamonds remained constrained by lower demand from China and competition from LGD in the US. Although polishers pushed sales in the fourth quarter to avoid tariffs, and price erosion was limited, revenues from natural diamond exports fell 17 per cent to USD 13.3 billion.
Says Rahul Guha, Senior Director, Crisil Ratings, 'This fiscal, realisations on natural diamonds are poised to rebound 3-4 per cent amid limited inventory across the value chain as diamantaires are aligning their rough purchases with visibility in sales of polished diamonds. Additionally, production cuts by miners will curtail price erosion. This contrasts with LGD, whose prices may reduce from a tenth of the price of natural diamonds last fiscal to a twelfth in the current fiscal, resulting in a wider price gap between natural diamonds and LGD.'
The rising price gap, in turn, could shave a further 12-14 per cent off natural diamond export volumes, marking a third consecutive year of weak demand after an aggregate degrowth of 32 per cent in the last two fiscals. That will make it difficult for the natural diamond polishers to pass on any tariff-led price hikes to customers. For the record, India will remain the primary port of call for polishing diamonds.
Says Himank Sharma, Director, Crisil Ratings, 'Natural diamond polishers, traditionally operating at thin margins of 4-5%, will have limited ability to absorb the tariff-induced price rise. As a result, miners and retailers may need to step in to absorb some of the price shocks. Consequently, we believe the operating margins of polishers may dip 20-30 basis points to 4.3-4.5 per cent this fiscal.'
Credit profiles of diamantaires might witness some working capital respite as weak demand will lead to a further 5-7 per cent cut in inventory levels across the value chain (after a 10-15 per cent decline last fiscal). This will limit the need for debt-funded working capital, although receivables from export customers will remain monitorable amid tepid demand, geopolitical issues and global uncertainties.
As a result, diamantaires' financial leverage – total outside liabilities to adjusted networth – and interest coverage will remain rangebound at ~0.8 time and ~2.5 times, respectively, this fiscal.