An analysis by CRISIL shows that India’s diamond exports could shrink by a fifth to ~$19 billion by the end of fiscal 2021, from $24 billion in fiscal 2019, as the novel coronavirus outbreak amplifies sluggishness in global demand.

In the first nine months of this fiscal, India’s total diamond exports by value were down ~18%, on-year. About 40% of these exports are to Hong Kong, which has seen dysfunctional local markets over the past year or so. And since January 15 this year, diamond exports have practically halted.

For exporters, payments from buyers in Hong Kong have been on time so far. However, bulk of the monies has just started falling due for sales that took place after October 2019 (bills are typically discounted for 90-120 days).

Given the situation, CRISIL analysed its investment-grade rated portfolio (ratings of ‘CRISIL BBB-/Stable/CRISIL A3’ or higher) comprising 24 diamond polishing companies on the following – but not limited to -- yardsticks:

• Exports and corresponding receivables from Hong Kong
  
• Liquidity cushion backed by unfinanced bills, unutilised bank lines and other sources of liquidity
  
• Stance of the company management in terms of adherence to CRISIL’s criteria of recognising default
  
• Confirmation from lenders about each company’s cash flow management and debt repayment timeliness
  

Consequently, rating action (including outlook revision) has been taken on 3 entities so far.

CRISIL will continue to closely monitor the payments cycle of diamond exporters, assess their liquidity profiles and take appropriate rating action.