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International Gemmological Institute (India)

• International Gemmological Institute (India) is coming out with a 100% book building; initial public offering (IPO) of 10,64,28,660 shares of Rs 2 each in a price band Rs 397 - Rs 417 per equity share.
• Not more than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
• The issue will open for subscription on December 13, 2024 and will close on December 17, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 2 and is priced 198.50 times of its face value on the lower side and 208.50 times on the higher side.
• Book running lead managers to the issue are Axis Capita, Kotak Mahindra Capital Company, Morgan Stanley India Company and SBI Capital Markets.
• Compliance Officer for the issue is Hardik Desai.

Profile of the company

International Gemmological Institute (India) (IGI) was the first to provide certification and accreditation services among its global peers in 1999 and was the first international laboratory for diamonds, studded jewelry and colored stones certification to be established. It has built customer relationships over the years, by focusing on service quality and full-service offering across all types of diamonds, studded jewelry and colored stones certification and accreditation. Throughout this journey, it has aimed to provide its services with quality, accuracy, and integrity. The Pre-Acquisition Group has a diversified customer base spanning across the value chain of the diamonds, studded jewelry and colored stones industry. As the largest certification services provider for laboratory-grown diamonds in India, IGI India serves more than 5 Indian growers of laboratory-grown diamonds with over Rs 1,000 million of revenue for FY2023.

Meanwhie, Post-Acquisition Group referring to IGI business globally, comprising the company, its Subsidiary, the IGI Belgium Group and the IGI Netherlands Group, IGI is the world’s second largest independent certification and accreditation services provider based on revenue for CY2023 among global peers for diamonds, studded jewelry and colored stones certifications, with a global market share of around 33%, based on the number of certifications of diamonds, studded jewelry and colored stones performed in CY2023. It is one of the established reputed certifiers in the global market. For the certification and accreditation of laboratory-grown diamonds, which is the fastest growing sub-segment within the overall jewelry market with a CAGR of around 19% from CY2019 to CY2023, the company is the global leader with around 65% of the market share based on the number of certifications for CY2023. The company also has a global market share of around 42% in terms of the number of certifications of studded jewelry in CY2023.

IGI’s operations first started in Belgium in 1975 through the establishment of IGI Belgium, and as of September 30, 2024, it has a global network of 31 branches which are equipped with IGI laboratories across 10 countries and 18 schools of gemology across 6 countries. The company has the largest number of laboratories globally and the largest number of schools established, among its global peers, as of September 30, 2024. In 1980, IGI USA was the first to issue jewelry identification reports among its global peers. In CY2005, IGI was also the first among its global peers to issue certification reports for laboratory-grown diamonds globally.

Proceed is being used for:

• Payment of the purchase consideration for the acquisition of IGI Belgium Group and IGI Netherlands Group from its Promoter
• General corporate purposes

Industry Overview

In the Indian jewelry market, gold has traditionally held the largest share, representing around 87% in CY 2019. Post-COVID-19, gold jewelry observed a 14% growth from CY 2020 to CY 2023 to reach Rs 4,300 billion ($52 billion) due to pent-up demand and weddings returning to pre-pandemic scale, but the share of gold jewelry reduced to 82% in CY 2023. Its contribution to the overall market is expected to decline to 70-75% by CY 2028 as other categories become more prominent. Diamond-studded jewelry, the second-largest segment, accounted for around 7% of the market in CY 2019, growing rapidly to Rs 780 billion ($9 billion) by CY 2023, contributing 15% to the overall market. The diamond-studded jewelry market is expected to drive India’s jewelry market by growing at a projected 20% CAGR from CY 2023 till CY 2028.

Certification plays a key role in the global loose stones and studded jewelry market. While metal quality can be determined based on its purity, the properties of diamonds are not visibly distinguishable to the human eye and require an expert assessment. Diamonds are made of carbon and other impurities, which impart essential characteristics (such as color) to the stone. Hence, “purity” cannot be used as a parameter for diamond quality analysis, unlike metallic elements such as gold, silver, and platinum. Thus, it is nearly impossible to have a single standard for diamond certification. However, the key common standards include cut, clarity, color, and carat weight. Often, metrics of fluorescence, symmetry, etc., are also evaluated. These standards would vary in terms of rigor, transparency, and scope across industry players - leading to variability in diamond grading. Certification is one of the key elements in assuring the quality of diamonds and colored stones for each stakeholder in the supply chain. This is particularly critical for midstream and downstream activities so that the authenticity and quality of the stones used in jewelry-making are verifiable.

Diamond grading takes place once the diamonds are cut and polished. They either get certified as loose stones or, after getting studded in the jewelry, for which a certificate is issued detailing the diamond’s various attributes as the studding permits. Of the total number of diamonds, the penetration of certification for natural diamonds is 65% in CY 2023. These can either translate into loose gemstones or studded jewelry certificates. The majority of them are certified as studded jewelry, with IGI having a global market share of 42% in terms of the number of studded jewelry certifications in CY 2023. IGI commands a global market share of 33% in the number of certifications of diamonds, studded jewelry, and colored stones performed in CY 2023. The certification penetration for LGDs is higher at 70% in CY 2023. One of the reasons for this is that LGDs are more likely to be produced in larger carat sizes, which are more commonly certified. The overall natural diamond certificate generation is expected to rise by 3% till CY 2028. LGD Certification is leading the certification growth by volume expected to rise by 25%, leading to a projected total of 8-9 million LGD certificates in CY 2028. Overall, an estimated 22-26 million certifications were issued in CY 2023, which is projected to grow at a CAGR of 5-10% till CY 2028.

Pros and strengths

World’s second largest independent certification and accreditation services provider: It is the world’s second largest independent certification and accreditation services provider among its global peers for diamonds, studded jewelry and colored stones certifications, with a global market share of around 33% based on the number of certifications of diamonds, studded jewelry and colored stones performed in CY2023. In India, which is the world’s largest center for cutting and polishing diamonds accounting for around 95% of the world’s total polished diamonds in volume terms in CY2023, the company is the largest independent certification and accreditation services provider holding around 50% market share in terms of number of certifications for diamonds, studded jewelry and colored stones for CY2023. Its international presence in India, United States, the PRC, Belgium, Netherlands, UAE, Egypt, Israel, Thailand, Hong Kong and Turkiye, enables it to service its global customer base.

Extensive range of services for certification and accreditation services: It is one of three players that offer a full stack of comprehensive offerings among its global peers, covering grading and classification services across different stone types. Its service offerings comprise providing certification, co-branded reports, grading and accreditation services for natural diamonds, laboratory-grown diamonds, studded jewelry and colored stones. It also provides value-added services to its customers such as the screening and detection of laboratory-grown and natural diamonds and sorting of diamond parcels for the detection of laboratory-grown diamonds and/or diamond simulants, as well as ancillary services such as audit and assurance services where it provides audit specialist services for accounting firms and financial institutions.

First mover and global market leader in providing certification services: Laboratory-grade diamonds are expected to drive the growth of the overall global diamond jewerly consumption from CY2023 to CY2028. The company started providing certification services for laboratory-grown diamonds in 2005 through IGI USA. It was the first among its global peers to issue certification reports for laboratory-grown diamonds globally in CY2005, and through its customer-centric approach and commitment to innovation, the company has become the global leader with around 65% of the market share based on the number of certifications of laboratory-grown diamonds for CY2023. Its market position in the certification of laboratory-grown diamonds positions it to leverage on the favourable trends underpinning the growth of the laboratory-grown diamonds market.

Education initiatives that support spreading awareness, building customer partnerships: The company’s education programs through the IGI Schools of Gemology are generally offered to (a) institutions, where it offers tailored courses and webinars to wholesalers, growers, manufacturers and retailers as well as (b) any individuals ranging from diamond and colored stone buyers, beginners to professionals in the diamonds, studded jewelry and colored stones industry wishing to gain more industry knowledge. To reach a wider pool of students, it offers e-learning courses which present a more flexible and accessible option and are available in seven languages. Its partnerships with customers to deliver tailored courses to their employees also serve to deepen its relationship with them.

Risks and concerns

Pre-Acquisition Group derived a significant portion of revenue from limited customers: It is dependent on certain key customers for a significant portion of its revenue. The company has garnered 51.45% and 48.70% of its total revenue from top 15 customers for Nine-months period ended September 30, 2024 and Nine-months period ended September 30, 2023, respectively. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows. While such instances have not occurred in the last three Calendar Years and in the nine-months period ended September 30, 2024, it cannot assure that it will be able to maintain historic levels of business and/or negotiate and enter into contracts on terms that are commercially viable with its significant or key customers or that it will be able to significantly reduce customer concentration in the future.

Ability to raise foreign capital may be constrained by Indian law: As an Indian company, it is subject to exchange controls that regulate borrowing in foreign currencies. Such regulatory restrictions limit its financing sources and could constrain its ability to obtain financings on competitive terms and refinance existing indebtedness. In addition, it cannot assure that any required regulatory approvals for borrowing in foreign currencies will be granted to it without onerous conditions, or at all. Limitations on foreign debt may have an adverse effect on its business growth, financial condition and results of operations.

Geographical constrain: Substantially all of the revenue of the Pre-Acquisition Group is derived in India, in particular, from laboratories, in-factory laboratory set-ups and mobile laboratory set-ups based in the states of Gujarat and Maharashtra, which are diamond manufacturing and trading hubs in India. The company has garnered 53.67% and 44.25% of its total revenue from Gujarat on Nine-months period ended 30, 2024 and Nine-months period ended 2023 respectively, while the company has garnered 35.74% and 44.02% of its total revenue from Maharashtra in Nine-months period ended 2023, while the company has garnered 35.74% respectively. Such geographical concentration of its business in these states heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial condition and results of operations.

Faces competition globally in its business: The loose stones (which include diamonds and colored stones) and studded jewelry certification market exhibits oligopolistic characteristics and is dominated by a few players, primarily due to the need to build up a strong reputation and credibility, alongside the requirement for specialized expertise and advanced equipment. It faces competition globally in its business against other diamonds, studded jewelry and colored stones certification businesses, including other major global players, namely Gemological Institute of America (GIA) and Hoge Raad Voor Diamant (HRD) Antwerp, as well as global players who have recently emerged in the 2000s including Gemological Science International (GSI) and Solitaire Gemmological Laboratories (SGL) as well as a few local and regional players. Competition may be based on many factors, including quality and reliability, turnaround time, technological capabilities, price and brand recognition.

Outlook

International Gemmological Institute (India) is a globally recognized organization certifying and grading diamonds, gemstones, and jewellery. IGI provides independent grading reports that analyze and certify the characteristics of stones using internationally recognized standards. These reports include details about the stone's colour, cut, clarity, and carat weight. On the concern side, the Pre-Acquisition Group derived a significant portion of its revenue from top 15 customers, and any inability to retain key customers or attract new customers and expand its customer network, could negatively affect business and results of operations. The revenue of the Pre-Acquisition Group is primarily concentrated in the states of Gujarat and Maharashtra in India, and any adverse developments affecting these regions in India could adversely affect its business, financial condition, results of operations and cash flows.

The company is coming out with a maiden IPO of 10,64,28,660 equity shares of Rs 2 each. The issue has been offered in a price band of Rs 397 - 417 per equity share. The aggregate size of the offer is around Rs 4225.22 crore to Rs 4438.08 crore based on lower and upper price band respectively. On performance front, the revenue from operations increased by 31.42% to Rs 5,963.57 million for the nine-months period ended September 30, 2024 from Rs 4,537.88 million for the nine-months period ended September 30, 2023, primarily due to an increase in revenue from certification services. Moreover, profit for the period increased by 36.60% to Rs 3,260.60 million for the nine-months period ended September 30, 2024 from Rs 2,386.94 million for the nine-months period ended September 30, 2023.

The company has strategically established in-factory laboratory set-ups which deliver onsite services for select, high volume laboratory-grown diamond growers to optimize supply chain logistics and minimize lead times. Its in-factory laboratory set-up helps cement its relationship with these customers, entrench it within the facilities of its customers, improve operational efficiencies, and make it challenging to replace it. By strategically distributing its service capabilities through its in-factory laboratory set-ups, it is able to improve flexibility and responsiveness to the rising market demand. This direct delivery approach enhances its operational resilience. It will strive to further expand its in-factory laboratory presence as new participants enter the laboratory-grown diamond manufacturing segment and develop robust relationships with them.