They generate sales leads for the IGI India and do not book sales by themselves.
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as per management-
most diamonds come to India, so the Ind business is able to do certification here itself.
But, IGIās main customers are retailers based in US and Europe. So, those two subsidiaries get these businesses by building relationships etc. So, while they are loss-making, they are helping get revenues for the Indian entity.
My first post/contribution in valuepickr!
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LGD Industry
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This report says around 45% of the brides preferred LGD for their engagement rings in this wedding season.
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LGD prices has corrected significantly over the past few years, where IGI still maintained their margin as the certification numbers also shoot up due to huge demand for LGD.
Management told that LGD prices may not fall much from the current value because further fall will make the difficult operation conditions for the manufactureās. Even we get some good capacities on stream but nobody willing to sell at a price where they will make losses.
Even price falls from here onwards, margins can be sustained ~50% levels due to increase in quantum of certifications.
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[ SOURCE ]
How does IGIās business model impact its profitability and sustainability?
IGIās business model, particularly its focus on both natural and lab-grown diamond certification, significantly impacts its profitability and sustainability.
Hereās a breakdown:
Market Position: IGI is the worldās second-largest independent certification and accreditation service provider, with a 33% market share. This market position gives it a solid base for generating revenue and impacting its profitability.
Dual Focus: IGI operates in both natural and lab-grown diamond certification. While the natural diamond market is more mature, the lab-grown diamond sector is experiencing rapid growth, with IGI holding a 65% global market share in this segment. This dual focus allows IGI to benefit from different market dynamics.
The natural diamond market is more established and each diamond is unique requiring individual grading.
The lab-grown market is volume-based and benefits from economies of scale and standardized.
Revenue Growth: IGI has experienced consistent growth, with a Compound Annual Growth Rate (CAGR) of 32% over the past three years. Revenue from lab-grown diamonds has increased from 35% to nearly 60% of their total revenue. This growth in the lab-grown sector is a key driver for overall revenue and profitability, while natural diamonds grew at only 2%.
Profit Margin :
While IGIās blended profit margin is 56%, Indiaās manufacturing hub has margins over 70%. This suggests that the majority of IGIās profits are earned in India, where a significant amount of diamond cutting, polishing, and certification takes place.
The margins on lab-grown diamonds are different from natural diamonds due to the volume-based nature of the business and standardized production of lab-grown diamonds, which allows for economies of scale. IGI has also incorporated automation and AI into its systems, further enhancing efficiency.
Although the prices of lab-grown diamonds have dropped significantly in recent years, IGI does not expect this to substantially impact its profit because the price has stabilized, and the company benefits from increased efficiency.
Acquisitions and Consolidation:
IGI is acquiring 100% ownership of its Belgium and Netherlands operations from Blackstone. This consolidation will integrate IGIās global operations into a single entity which is expected to drive future growth and streamline business.
Global Presence:
IGI operates in 11 countries, with branches that act as marketing and liaison arms, and full-fledged laboratories. While these international branches are high-cost, they are instrumental in generating profits in India.
Competitive Landscape:
IGI faces competition from the Gemological Institute of America (GIA), which has a larger overall market share. However, IGI has a significant lead in the lab-grown diamond certification market, which is difficult for GIA to penetrate.
In summary,
IGIās profitability is driven by its dual focus on natural and lab-grown diamonds, its strong market share, particularly in lab-grown, and its manufacturing hub in India. The companyās strategic acquisitions and global presence further enhance its ability to generate revenue. Its sustainability is supported by its operational efficiencies, its ability to navigate the competitive landscape, and the continued growth of the lab-grown diamond sector.
What explains IGIās significant valuation increase in 18 months?How does IGIās market share differ between natural and lab-grown diamonds?What are the key differences in IGIās margins between natural and lab-grown diamonds?
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Amit Jeswani talking about his IGI investment, very candid and interesting piece of conversation where he explains his rationale
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Why have promoters pledged 100% of their shareholding?
Isnāt this a huge red flag?
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Yeah, just saw that.
Needs to be looked deeply why have they done that.
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Where did you get info about promoters pledging?
its there in screener.
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Is this pledging post IPO or was mentioned in DHRP as well? any idea?
Read the complete thread and have following questions
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Everyone mentioned that prices cannot fall further as it wonāt be feasible for LGD manufacturer. Is any one aware of the unit cost of production per carat ? Why it canāt reduce ? Is it raw material or energy cost ?
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Which special tools/tech certification companies have which others canāt buy ? Why canāt Titan purchase such machines and stamp diamonds sold from their shops as Titan certified? Just like gold hallmarking? Is there any law prohibiting them ?
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Is the only moat of the company that they are the only authorised dealer to do certification?
Please if anyone can answer. ?
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Promoters typically pledge shares to raise funds for working capital, expansion, or financial management. However, IGI India (IGIL) does not require funds for these reasons, as it has a strong balance sheet, superior return ratios, and no debt. The IPO proceeds were primarily used to acquire IGI Belgium and IGI Netherlandsāboth owned by the same promoters.
Blackstone acquired IGIL in 2023 for approximately $500 million and listed it in India in late 2024 at a valuation of over $2 billion, achieving a 4x return in just 1.5 years. As a VC firm, Blackstone aims to maximize liquidity and reinvest in other opportunities. Pledging shares allows them to unlock value without an immediate exit.
Notably, Blackstone has already recouped its initial investment through the IPO proceeds while retaining a 76.5% stake in a multi-billion-dollar listed entity. Given the nature of the promoters, pledging in this case should be viewed differently.
The main long-term risk related to the promoters could be an untimely promoter exit , frequent share sales or a potential sale to another private equity firm that may not manage the company well. However, in recent interviews, both the CEO and CFO have indicated that the promoters plan to stay invested for at least the next 3ā5 years.
Ultimately, the true intent of the promoters will become clearer after the lock-in period ends.
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What is the lock in period in this case? 6 months?
IGI business model is asset light and ratings/data business is always a good idea to invest in. But considering it is owned by a very powerful VC, I am sure they extracted maximum value from the IPO [which is capitalism for you!], so I am sure the stock price is high for now. I will let markets meander and wander and make a decision about the stock before getting in. Also promoter holds a lot of stock, so liquidity will be low so high chance of keeping the price high. It is a $2B company, does the TAM justify the 50+PE growth? questions to ponder before investing. just my $.02.
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This pledge is due to promoter pledging of parent company for security. No pledge is there on this company.
It costs about $300 to $500 per carat to produce a single lab-grown diamond.
Institutes and labs with reputation which teach certification to jewellers.
āHallmarking of gold or gold jewellery is done at various AHCs (assaying and hallmarking centres) present across the country. These AHCs are licensed and monitored by the BIS and form the backbone of all gold hallmarking processes.ā
There are one of the few certification companies present worldwide.
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morgan stanleyās take on igil- IGI India Gets 'Overweight' From MS On Strong Potential In Lab-Grown Diamond Market.
lmk of anyone finds the full report link. I have seen the first 3 pages on x btw, the article sums it up pretty much.
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A price-to-earnings ratio of 70 for a company expected to grow at 15% seems more like a bet on capital preservation, hoping that the company will start paying dividends at a later stage. If LGD grows in India the way it did in the US, there are better options available, including LGD manufacturers, exporters, and retailers.
During the next selling round, and once the results are released, it seems likely that lower levels will be on the horizon. Let the promoter reduce the stake to below 75% and declare a couple of quarter results if the business seems 20%+ growth engine will become interested.
Disclosure: Invested after IPO and exited around 580-600 levels.
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where did you get the price to earnings of 70? it is more like 50-55 FY 25, even ttm it is not above high 50s per my basic calculations. If you are using screener for you reference, it is operating on incomplete data, pe is 70 on FY 23-24 earnings which are already outdated by 9 months.
Disc, invested and think that the growth will be higher, 25-30 percent range expected, i think MS report growth projections were too conservative.
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