IGI Logo

Salient features of the IPO:

* International Gemmological Institute (India) Ltd. (IGI India), is the company providing services related to the certification and accreditation of natural diamonds, laboratory-grown diamonds, studded jewelry and colored stones as well as the offering of educational programs, is coming up with an IPO to raise around Rs. 4,225cr, which opens on 13th Dec. and closes on 17th Dec. 2024. The price band is Rs. 397 - 417 per share.

* This public issue is a combination of fresh issue (Rs. 1,475cr) and OFS (Rs. 2,750cr). The company will not receive any proceeds from the OFS portion. From the fresh issue net proceeds, the company will be utilizing Rs. 1,300.0cr for Payment of the purchase consideration for the acquisition of the IGI Belgium Group and IGI Netherlands Group from the company’s promoter. Residual proceeds will be used for general corporate purposes.

* The promoter & promoter group (P&PG) entity is participating in the OFS and is offloading 6.595cr – 6.927cr equity shares. Post-IPO, the P&PG and public shareholders will have 76.55% and 23.45% stake in the company, respectively.

Key competitive strengths:

* Global Market Leader in Certification Services for the Rapidly Expanding Laboratory-Grown Diamond Industry

* Comprehensive Certification and Accreditation Services for a Diverse Customer Base Across the Value Chain

* Education initiatives that support spreading awareness, building customer partnerships and the company’s brand

* Proven Track Record of Driving Growth in Revenue, Margins, and Returns

Risk and concerns:

* Reliance on Information Technology Systems and Risks of Disruptions or Security Breaches

* Risks Related to Grading Process, Fraud Prevention, and Quality Control Challenges

* Laboratories concentrated in Gujrat and Maharashtra

* Impact of Economic, Political, and Market Conditions

* Unfavorable foreign currency exchange rates

* Competition

Below are the key highlights of the company:

* China, India, and the USA emerge as the leading consumption markets in the global jewelry landscape, collectively contributing to a 74% market share in Calendar Year 2023 (CY23) in terms of value, which is expected to rise to 79% by CY28. This growth is expected to be primarily fueled by India, which is projected to grow at a CAGR of 12% until CY28, 2.5x of the global jewelry growth rate.

* Diamond-studded jewelry, the second-largest segment in India, contributing 15% to the overall market in CY23, is expected to drive India’s jewelry market by growing at a projected 20% CAGR from CY23 to CY28.

* The advent of lab-grown diamonds (LGDs), which have 70-80% lower selling prices than natural diamonds on a per-carat basis in CY23, is enabling growth in the market. LGD prices have declined by 37% from CY20 to CY23.

* Of the total number of diamonds, the penetration of certification for natural diamonds is 65% in CY23, with IGI having a global market share of 42% in terms of the no. of studded jewelry certifications in CY23. The certification penetration for LGDs is higher at 70% in CY23. The overall natural diamond certificate generation is expected to rise by 3% till CY28. LGD Certification is leading the certification growth by volume expected to rise by 25 %. Overall, an estimated 22-26 mn certifications were issued in CY23, which is projected to grow at a CAGR of 5-10% till CY28.

Key highlights of the company (Contd…):

* India is the world’s largest center for cutting and polishing diamonds, accounting for 95% of the world’s total polished diamonds in volume terms in CY23. This is primarily due to the low labor costs and an abundance of skilled artisans, talent accumulated with Surat, which has been a diamond trading center for several decades. In India, Surat is the primary hub of cutting and polishing diamonds, contributing to more than 90% of India’s total volume of CPD in CY23.

* Currently, IGI India, along with IGI Belgium and IGI Netherlands, are held by the Promoter, BCP Asia II TopCo Pte. Ltd. IGI Belgium and IGI Netherlands, along with their respective subsidiaries, manage the operations of the IGI business outside of India and Türkiye. Post-acquisition, IGI India will become the 100% shareholder of IGI Belgium and IGI Netherlands, thereby assuming responsibility for the global operations of the IGI business.

* Since May 2023, IGI has been wholly owned by BCP Asia II TopCo Pte. Ltd., which is an affiliate of funds managed and/or advised by affiliates of Blackstone, the world’s largest alternative asset manager, based on assets under management of USD 1,107.63 bn as of September 30, 2024.

* The Pre-Acquisition Group (IGI group operating in India and Türkiye): Incorporated in February 1999, IGI India’s primary business is the provision of services related to the certification and accreditation of natural diamonds, laboratory-grown diamonds, studded jewelry and colored stones as well as the offering of educational programs.

* IGI India holds approximately 50% market share globally in terms of number of certifications of diamonds, studded jewelry and colored stones for CY23. As of September 30, 2024, IGI India has the largest pan-India laboratory network among its global peers for grading lab-grown diamond, the Pre-Acquisition Group has 19 IGI laboratories in India and 1 in Türkiye which perform certification services.

* The key services/offerings of the Pre-Acquisition Group are: Comprehensive diamond grading, Evaluating the quality and authenticity of colored stones, Grading and assessment of finished jewelry pieces, Conducting educational programs and courses.

* IGI India was the first to provide certification and accreditation services among our global peers in 1999 and was the first international laboratory for diamonds, studded jewelry and colored stones certification to be established. As the largest certification services provider for laboratory-grown diamonds in India, IGI India serves more than 5 Indian growers of laboratorygrown diamonds.

* Over the years, the company has strengthened its relationships with the customers and stakeholders through various initiatives such as introducing co-branded reports, in-factory laboratory set-ups, mobile laboratory set-ups, and continually expanding our suite of certification and accreditation services.

* Company’s model has enabled the Pre-Acquisition Group to deliver a demonstrated track record of growth and profitability. For the nine-months period ended September 30, 2024 and 2023, and for CY23, CY22 and CY21, revenue from operations of the PreAcquisition Group was Rs. 596.36cr, Rs.453.79cr, Rs.638.53cr, Rs.490.99cr and Rs.364.69cr, respectively, representing a CAGR of 32.32% from CY2021 to CY2023.

* The Post-Acquisition Group: For the certification and accreditation of LGD, the fastest growing sub-segment within the overall jewelry market with a CAGR of approximately 19% from CY19 to CY23, IGI is the global leader with approximately 65% of the market share based on the number of certifications for CY23. As of September 30, 2024, IGI 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 largest number of laboratories and schools established.

* As per the ProForma financial information, revenue from operations of the Post-Acquisition Group, for the nine-months period ended September 30, 2024 and for CY23, was Rs. 788.16cr and Rs. 898.01cr, respectively. EBITDA for the same period was Rs. 441.71cr and Rs. 496.00cr, and PAT was Rs. 316.83cr and Rs. 330.85cr, respectively.

* Additionally, in 2018, IGI introduced the Dcheck System that enables it to differentiate between laboratory-grown diamonds and natural diamonds in loose as well as in mounted condition. To support the laboratory-based services, IGI offers digital solutions through online platforms including IGI’s website and application programming interface (“API”), for customers and their endconsumers to access their respective grading reports. These are accessible through a QR code in the grading reports.

* IGI’s global education platform, the IGI Schools of Gemology, enables the group to promote the IGI brand, raise awareness about the need for certification in the diamonds, studded jewelry and colored stones industry, and helps upskill industry professionals. It provides a range of courses spanning the study of polished and rough diamonds, colored stone grading, jewelry design and retail support courses along with a graduate gemologist diploma (IGI, G.G.).

* Increase in sales of LGDs, where approximately 70% of LGDs are being certified globally in CY23, and surging demand for LGDs and is expected to lead to increased certification requirements to approximately 85% of LGDs by CY28.

* In terms of certification, the loose stones and studded jewelry certification market is estimated at Rs. 46 - 54 bn in CY23. An estimated 22 - 26 mn certifications were issued in CY23, which is expected to grow at a CAGR of 5% to 10% from CY23 to CY28, with laboratory-grown diamonds certification leading the certification growth by volume and is expected to increase by approximately 25% in CY28.

Key highlights of the company (Contd…):

* The certification and accreditation services we provide to the customers for diamonds mainly come in the form of a Natural Diamond Report or Laboratory Grown Diamond Report depending on the diamond type. IGI’s diamond reports include details such as whether the diamond is of natural or laboratory-grown origin and will document all aspects of the diamond’s value setting 4Cs.

* IGI’s Jewelry Report describes the article, identifying all mounted colored stones as well as precious metal content and purity stamps, if present. For jewelry pieces with diamond center stones, its shape, cutting style, measurements and 4Cs assessments are provided in the Jewelry Reports, as mounting permits. For jewelry pieces with color center stones, its species, variety, shape, cutting style, measurements, color, transparency, and other relevant gemological details are provided in the Jewelry Reports, as mounting permits.

* The company’s Colored Stone Report identifies certain details of a colored stone, including its species and variety and characteristics. A detailed photograph is included, and the country of origin will be stated in the report if this can be conclusively ascertained by gemological analysis.

Peer comparison and valuation:

IGI India is a globally recognized leader in certifying and grading natural diamonds, laboratorygrown diamonds, studded jewelry, and colored stones, as well as offering educational programs. The company has demonstrated consistent figures in both revenue and profit in the reported periods and is also a dividend-paying entity.

There are no listed comparable peers having business model similar to IGI. At the upper end of its price range, IGI India is demanding a P/E multiple of 43.7x, based on its TTM EPS of Rs. 9.5, and an EV/Sales multiple of 20.9x, which suggests it is highly priced based on the company’s margins and return ratios. With India holding a 95% share of the global diamond polishing market by volume, IGI, as the market leader, is well-positioned to benefit from this dominance in the long term. However, despite the high valuations, the industry's positive growth trends may support IGI's future prospects. Thus, we recommend a “Subscribe for Long Term” rating for this issue.

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