International Gemological Institute Limited Q3 FY2025 Concall Summary

Key Takeaways

• First consolidated quarter, 20% revenue growth: Group revenue crossed ₹1,000 crores for the first time, driven by 26% India growth and a strong Netherlands contribution, while Belgium posted losses.
• Lab grown diamonds now over 30% of certifications: The mix shift from jewelry to lab grown diamond certification continued, compressing blended realization per report, but management argues volume-led growth is the durable story.
• Margins expanded sharply on cost restructuring: PBT margins improved 500 bps to 55.6%, with sustainable savings from organizational corrections in key markets and an extended November factory shutdown that avoided inventory build-up.
• Management declined to disclose revenue splits: Citing competitive sensitivity as the only listed pure-play, the company would not break out natural vs. lab grown diamond revenue, certification vs. other revenue, or segment-level growth rates.
• What to watch next quarter: Whether the Belgium entity’s \$2 mn quarterly loss narrows, the pace of India grading-capacity hiring and its effect on employee costs, and any stabilization in lab grown diamond pricing after eight to nine months of flatness.

Lab Grown Diamond Certification: Mix Shift and Realization

• Certification count mix: Lab grown diamond certifications have moved from just over 20% to over 30% of total certification count, while jewelry certification has declined from roughly 70% to 58%, a shift consistent across recent quarters.
• Global market position: IGI holds 65% global market share in lab grown diamond certification, a position management frames as a structural advantage as lab grown diamonds expand the consumer base by making diamonds more affordable.
• Realization pressure is structural, not cyclical: The dip in realization per report is driven by volume-led discounts offered to factory growers as volumes scale, plus the increasing mix of lab grown diamonds, which carry lower certification fees than natural diamonds.
• Volume growth will outpace value growth: Because lab grown diamonds are more affordable and bring new consumers into the fold, volume growth will continue to exceed value growth, though management insists value growth will remain healthy.
• Price stabilization holds: Lab grown diamond prices have stabilized over the last eight to nine months because growers and polishers realized they must be sustainable given their large capex and opex commitments, and cannot operate beyond an unsustainable level.

Tehmasp Printer: "See, the thing is, I have good news for you. While the price has now stabilized over the last eight, nine months, now what has happened is that the growers and the polishers realize that they have to be sustainable on a long-term basis and they have huge Capexes and opexes to deal with. So, they cannot go beyond an unsustainable level."

India Business: The Growth Engine

• Standalone performance: India delivered 26% revenue growth and 31% PBT growth, with PBT margins of 74.7%, a 400 bps improvement, and PAT margins of 55.9%.
• Q4 dynamics: October was extremely robust with a massive ramp-up in certification and inventory; November saw an extended holiday shutdown of 15 to 20 days, versus 7 days last year, as manufacturers managed inventory cycles and avoided unnecessary build-up, which also contributed to price stabilization.
• Grading capacity ramp: India continues to induct people for grading as long as required to meet customer expectations and improve customer experience, a deliberate investment that keeps employee expenses elevated at 25% of consolidated sales.
• Lab grown diamond tipping point: Management sees India at a tipping point for lab grown diamond jewelry growth, driven by the size of the middle class and the affordability factor, and expects a very good run over the next three to five years.

Eashwar Iyer: "we are just at the beginning of what should be a very good run over the next three to five years."

European Entities: Netherlands Strength, Belgium Drag

• Netherlands delivered: 20% revenue growth and close to 100% PAT growth, reflecting strong operational performance in a market insulated from the war's direct effects.
• Belgium losses: The Belgium entity incurred losses of close to \$2 million for the quarter, driven by headwinds from the war in Europe; the entity was extremely profitable before the war and management is optimistic about a bounce-back if the war settles down.
• Acquisition mechanics: IGI India completed the acquisition of IGI Belgium and IGI Netherlands in December 2024 for ₹1,345 crores, using ₹1,300 crores of primary IPO proceeds; the corresponding liability has been squared off with an investment in capital reserve.
• Recovery contingent on geopolitics: Management hopes things settle down in the near future so the Belgium entity returns to profitability, but offered no timeline or condition beyond the war ending.

Margins and Cost Structure

• Margin walk: PBT margins improved 500 bps to 55.6% and PAT margins improved nearly 400 bps to 40.6%, attributed to efficient cost management and revenue growth.
• Cost efficiencies are sustainable: Other expenses reduced significantly versus the same quarter last year due to restructuring in some markets and organizational corrections in key markets; management stated these savings are sustainable into the future.
• Employee cost headwind: Employee expenses at 25% of consolidated sales reflect India continuing to ramp up hiring for grading capacity, plus slowing revenue growth in US and Belgium markets where long-tenured employees of 15 to 20 years cannot be let go.
• Extended holiday as margin lever: The extended November factory shutdown of 15 to 20 days helped manage inventory levels and avoid pricing pressure, contributing to the quarter's margin performance.

Brand Building and Strategic Investments

• B2C marketing launch: IGI has launched television ads targeted toward B2C customers to increase brand salience, moving beyond its traditional B2B marketing approach, as part of a strategic imperative to build the brand over the next three to five years.
• Senior talent infusion: New senior-level talent has been brought into the organization to execute the brand-building and marketing strategy.
• Open-ended investment commitment: Management will invest as much as needed in marketing if it proves effective in connecting with retailers, consumers, and manufacturers, but declined to provide a specific brand expense number or percentage for the coming years.
• One IGI strategy: The company intends to leverage India's manufacturing and polishing strength coupled with retail strength from its presence in key markets including China, the US, and the Middle East.

Eashwar Iyer: "I think one of the key strategic pillars for the organization for the next three to five years is to make significant investments from a marketing brand salience, brand building standpoint."

Revenue Visibility and Disclosure Constraints

• Quarterly visibility: Management can reasonably estimate close to 50% to 60% of quarterly revenues at the beginning of the quarter due to consistency built across segments, including jewelry, natural diamonds, and lab grown diamonds.
• Competitive sensitivity limits disclosure: Management repeatedly declined to provide revenue splits by segment, including natural vs. lab grown diamond certification revenue, certification vs. other revenue, and India-specific lab grown market share, citing the fact that IGI is the only listed company in this space and must keep some information confidential in the interest of commercial expediency.
• Segmental disclosure may come later: Management will explore sharing segmental revenue disclosures, as provided in the DRHP, on a six-monthly basis, noting this is their first call and they will learn along the way.
• Education revenue is small: Education contributes 2% to 3% of revenues, the only specific revenue split management provided.

Eashwar Iyer: "Again, in the interest of just being sensitive from a competitive standpoint, we must understand that we are the only company in this space who are listed in the market. We would therefore want to keep some of these information confidential in the interest of commercial expediency."

Guidance & Commitments

Key Metrics