Blackstone polishes its diamond bet to perfection

Shiny prospects. Blackstone is grabbing at some of the sparkle from India’s booming equities market. Steve Schwarzman's investment firm plans to list a certifier of diamonds at a valuation seven times what it paid last year to buy the company from China's Fosun International and Belgium's Lorie family. Listing the business in the world's second-largest market for the rock makes sense, and will bag the U.S. buyout firm a sparkling return.

International Gemmological Institute certifies one-third of the world’s diamonds, studded jewellery and coloured stones, according to its prospectus. Most of its clients are based in the cutting and polishing hubs of Mumbai and neighbouring Gujarat state, and nearly all of its top line originates in the country.

Crucially, IGI will use almost a third of some $470 million IPO proceeds to buy its units in the Netherlands and Belgium, where IGI was founded in 1975, from Blackstone. After the rejig, the private equity giant will remain the controlling shareholder and the company will become an Indian-led entity. That helps IGI list in the South Asian country and target a valuation of $4 billion, as Moneycontrol reported last month, citing an unnamed source.

That headline figure looks polished, rather than punchy. It equates to 68 times EBITDA for 2023. None of IGI’s peers - the nonprofit Gemological Institute of America and Belgium’s HRD Antwerp among them - have publicly traded shares. Indian bling sellers Titan, backed by the Tata Group, and Kalyan Jewellers, are adorned with multiples of 64 and 54 times EBITDA.

IGI is growing fast and is more profitable than both those Indian companies. Its top line grew 30% in 2023, outpacing Titan and just shy of Kalyan's 32% growth in the year to the end of March. The diamond company's 37% net profit margin for 2023 is five times that of Titan and more than 10 times Kalyan's.

Unlike certifiers, jewellers have a more diversified range of products that could see them through periods of poor demand for studded pieces and price downturns. And while India is experiencing a surge in its love for diamonds, displacing China as the top buyer of the natural variety, Indians have cared little so far for the lab-grown variety of the gem, which accounts for 60% of IGI’s revenue.

Nonetheless, with rosy projections laid out in IGI's prospectus for a double-digit rise in jewellery consumption over the next five years, Blackstone's polishing up of its diamond bet appears well-timed.

Context News

Blackstone is eyeing a valuation of around $4 billion for jewellery certifier International Gemmological Institute in a Mumbai initial public offering, news website Moneycontrol reported on Aug. 27, citing an unnamed source. The offer will comprise new shares worth up to 12.5 billion rupees ($149 million) and existing shares worth up to 27.5 billion rupees ($328 million), per the draft prospectus.