Goldiam International: An opportunity amid diamond market shifts

This slump, unprecedented in decades, has led to certain diamond categories being valued at levels reminiscent of 2004—a striking turn of events in the diamond market.

Which is why the stock performance of Goldiam International, a prominent diamond manufacturer and exporter, is rather intriguing.

Having slipped from ₹172 in February to ₹125 in March, the stock of Goldiam International, backed by investment heavyweights Ashish Kacholia, RK Damani, and Mukul Agarwal, has displayed a remarkable rebound.

Despite the downward trend in natural diamond prices and a substantial reliance on the struggling US economy, the company’s stock has bounced back in just a few days – from ₹140 on 3 November to ₹169 on 23 November.

This jump is attributable to its robust quarterly earnings.

Sales in the September quarter increased 11%, with net profits experiencing a notable 25% uptick, in comparison with the previous quarter. Operating margin, once at 18%, has registered a marked improvement, and now stands at a commendable 25%. This marks a turnaround from a downward trend in recent quarters.

This upswing in performance is attributable to the robust demand for the company’s Lab Grown Diamonds, rather than for natural diamonds.

Lab-grown diamonds (LGD), a substitute for natural diamonds, is a relatively high-margin market that Goldiam International entered in 2015. These diamonds share the same aesthetic allure as natural diamonds but can cost up to 40% less.

Back then, Goldiam International sought a new market, selling premium designs and higher-carat LGD jewellery to customers typically inclined towards Swarovski diamonds, silver jewellery, and coloured stone jewellery.

The strategic transition towards lab-grown diamonds has proven successful, with the company’s revenue composition making a substantial pivot—LGD now accounts for an impressive 34%, up from 19% last year.

This shift is particularly remarkable considering the downward trend in LGD prices, underscoring the company's resilience and adaptability in challenging market conditions.

Now, Goldiam International not only caters to a niche market with LGDs but also addresses the declining demand for natural diamonds.

The economic slowdown in the United States has unexpectedly worked in Goldiam's favour, as consumers, facing tighter budgets, turn to the more affordable LGDs.

Looking ahead, investors are eagerly anticipating a promising upcoming quarter, buoyed by the holiday season encompassing Thanksgiving and Christmas—a prime selling period for the company in the United States, akin to the festive sales period during Diwali in India.

Additionally, Goldiam International plans to diversify its revenue streams, targeting new markets such as the Middle East, the UK, and the European Union. It is also introducing its products in India to tap new audiences.

The business is well-poised for double-digit growth, with operating margins at 20-25%. The company has maintained a healthy balance sheet, keeping debt at bay.

While the growing competition from unorganised players remains a concern, Goldiam International's substantial scale acts as a shield against competitive pressures, making it an appealing choice for large retailers.

Having nurtured strong relationships with global retailers and departmental stores (40-60 stores) in the United States over the years, Goldiam International holds a solid position in the market.

Moreover, its focus remains on the massive addressable LGD market. In the United States, lab-grown diamonds constitute only 4-5% of overall jewellery sales. But projections suggest these could represent 10% of the diamond market by 2030.

At the current stock price of ₹172, the Goldiam International stock trades at a PE ratio of 22.2 times. This number is higher relative to historical trends given the drop in earnings in FY23.