2011

Sahkaar Gems
Business Plan on Diamond Processing Unit

Rahul Savalia
PGP-ABM, Unitedworld School of Business, Ahmedabad
3/28/2011
Table of Contents
Introduction ............................................................................................................................................ 3
Background to the Idea ........................................................................................................................... 3
Product Description and Uses .................................................................................................................. 4
Raw Materials Requirement and Availability............................................................................................ 5
Manufacturing Process ............................................................................................................................ 5
Industry Overview ................................................................................................................................... 6
Global .................................................................................................................................................. 6
Indian .................................................................................................................................................. 6
Market Outlook ............................................................................................................................... 6
Local .................................................................................................................................................... 7
Basis and Assumptions ............................................................................................................................ 7
Marketing Activities................................................................................................................................. 8
Projected Free Cash Flows and Financial Viability .................................................................................... 9
Introduction
Sahkaar Gems is a sole proprietorship firm, an initiative by management graduate to process the rough
diamond. The diamond processing unit will be set up in a notified area in Surat, Gujarat. Firm will
procure the rough diamonds and process it into the finished product i.e. polished diamond, which will
be sold to the local agents and traders in the local market. Initially the firm will set up the unit with 3
ghantis, which can approximately process 2750 carats of rough diamonds requiring 4 workers for each
ghanti.

Background to the Idea

 Surat is the world’s biggest diamond cutting and polishing centre and has become a top player in
global diamond industry by processing almost 80 % (Source: The Economic Times article dated
28th December, 2009) of solitaire diamonds, big diamonds above one carat once dominated by
Belgium and Israel.
 A recent study by KPMG shows that market share of Belgium and Israel in cutting and polishing
big diamonds is expected to decline from 17 % to 5 %, (Source: The Economic Times article dated
28th December, 2009) reasons being declining output, rising labour cost, and inability of the
industry to retain manpower in the face of competition from emerging centres like India,
especially Surat.
 Easy availability of skilled and cheap labour required to process the rough diamond.
 Ever rising and forever demand for polished diamond.
 High return business with less investment as compared to other industries.
 It is among the very few industries that can run its business without any educated and
professionally qualified people making it easy and cheap availability of labour.
 Providing employment to the uneducated but highly skilled people thereby helping the
economy to cater the problems of unemployment in the country.
 Presence of Indian Diamond Institute in Surat has led to increase in labour productivity.
 Surat is the cheapest diamond processing hub in the world.
 (Source: The Diamond Industry in Gujarat, HBS Report)

Product Description and Uses

Diamond consists of carbon atoms which are linked in a regular three-dimensional lattice with a
repeating or crystalline pattern. All the atoms are equidistant from each other. Diamond belongs to the
cubic or isometric crystal system. The most commonly seen crystal structures or arrangements, known
as morphologies are Octahedron (8 faces), Cube (6 faces) and Dodecahedron (12 faces).
Regarded for their exquisite beauty and the timeless quality of love and devotion that they represent,
diamonds have fascinated mankind throughout the centuries. The most precious and enduring of all
gemstones, diamonds were formed billions of years ago, deep within the earth. Only a small number
survive the journey to the earth’s surface; fewer still are of a quality that can be made into a precious
piece of jewellery.
Diamonds have two main uses, in jewellery (due to their rarity and beautiful appearance) and in industry
(due to their unique molecular properties). In terms of quantity, about 30% of diamonds are of gem
quality and are distributed to experts for cutting, polishing and jewellery manufacture. The remaining
70% of diamonds are sold for industrial applications including cutting, drilling, grinding and polishing in
industrial applications. (Reference: diamondfacts.org)
Diamonds have been used throughout history as a symbol to express emotions - love, affection and
commitment and are often given to celebrate special occasions that are also unique, such as weddings,
births and anniversaries. In many cultures diamonds are considered to be the ultimate jewel.

Raw Materials Requirement and Availability

The only raw material required in this industry is the rough diamonds, rest all are equipments,
machinery and hand tools by which rough diamond can be polished into final polished one. Initially the
firm will require 2750 carats of rough diamonds as per our current capacity of 3 ghanti. Firm will procure
rough diamonds from agents, traders or sight holders of DTC-De Beers Group (Diamond Trading
Company), the only company which distributes rough diamonds throughout the world. However,
procurement of rough diamonds directly from sight holders of DTC will depend on the quantity to be
purchased.

Manufacturing Process
Manufacturing process in case of diamond processing is not very standard process that can be explained
in a stepwise method unlike other manufacturing processes as it involves lot human skills to cut, shape
and polish the diamond. However there is some process involved to make polished diamond from the
rough one. The worker cuts and shapes the diamond according to the characteristics of rough diamond
using ghanti, saran which revolves between the ghanti via motor, angoor, katora, eye glasses, grinding
machine and many more hand tools.
Industry Overview

Global
 The global diamond industry is around USD 80 billion.
 More than 45 % of diamonds are mined from central and southern Africa. Other significant
diamond miners are in Australia and Canada.
 The industry employs more than 10 million people.
 USA followed by Japan and India are the top consumer of diamonds.
 India, Belgium, China and Israel are the top diamond processing destinations.
(Source: IBEF Gems and Jewellery Report, Gems and Jewellery Export Council)

Indian
 India is the largest diamond processor, around 90 % by pieces and 55 % by value of the global
market.
 The total exports of gems and jewellery exceeded USD 28 billion in 2009-10, growth of more
than 16 % over 2008-09.
 The Indian gems and jewellery industry is the fastest growing market in the world.
 The presence of highly skilled, low cost labour enables India to design and make high volumes of
exquisite diamond jewellery at relatively low cost.
 Leading brands like Wal-Mart, JC Penney procure diamond jewellery from India.
 The industry provides employment to more than 1.3 million people directly and indirectly.
(Source: IBEF Gems and Jewellery Report, Gems and Jewellery Export Council)

Market Outlook
 India offers world’s most cost competitive and technology savvy work force.
 The market is expected to grow at a CAGR of around 14 % from 2009 to 2012. Organised retail
to be a major driver for growth.
 The organized sector of gems and jewellery industry in India is estimated to grow at 40 % per
annum.
 The consumption of diamond jewellery in India is expected to touch USD 7 billion in 2012.
  State-run National Mining Development Corporation (NMDC) plans to produce close to 100000
carats of diamonds from the Panna Diamond Mines in Madhya Pradesh by the end of this year.
 UAE, Hong Kong and US are top 3 export markets. New markets of Russia, China and Middle East
are being tapped.
(Source: IBEF Gems and Jewellery Report, Gems and Jewellery Export Council)

Local
 Surat is referred to as the “Silky City Sparkling with Diamonds.”
 Around 65 % of total gems and jewellery exports of India.
 90 % of total diamonds in Gujarat are processed by about 10000 diamond units located in and
around Surat.
 Diamond processing and trading units are spread across the state in cities such as Surat,
Ahmedabad, Palanpur, Bhavnagar, Navsari and Valsad.
 Surat contributes to 42 % of world’s total rough diamond cutting and polishing.
 It contributes to 70 % of nation’s total rough diamond cutting and polishing.
 65 % of nation’s total diamond exports.
 It processes 10 out of 12 varieties of diamonds in the world contributing to INR 45000 crore
(USD 10.71 billion), which is approximately 65 % of total diamond exports from India.

Basis and Assumptions

I have arrived on various figures and projections in this business plan on the basis of following
assumptions:
 Initial capacity is of 3 ghantis which requires 4 workers on each ghanti to process the rough
diamonds, similarly requiring 3 saran, 3 motor, 12 angoor, 12 katora and also 12 eye glasses as
per the calculation of 3 ghantis.
 The calculation is based on 11 months out of 12 months in a year because 1 month vacation
during Diwali is a standard norm for this particular industry especially in Surat.
  The price of procuring rough diamonds is calculated on the basis of current market price.
 Selling price of final polished diamond is also calculated on the basis of current market price and
condition.
 The project cost and other plant, machinery and equipment cost is calculated on the basis of
quotations given by the suppliers according to the current market rates.
 Electricity cost is as per the current rate.
 Out of 2750 carats of rough diamonds, 550 carats are rejected and can be sold as rejection lot,
out of the rest 2200 carats of rough diamond 660 carats of final polished diamonds can be
manufactured and rest 1540 carats becomes powder during its shaping process with revolving
saran which is a total loss during the process.
 Saran needs to be replaced every year, rest all equipments and machineries need not be
replaced, it requires only maintenance charges.
 Rent is assumed to be constant every year.

Marketing Activities
As a diamond processing unit no marketing activities are required to sell the final polished diamonds,
because these finished diamonds are not sold directly to end consumer but are sold to firms, traders or
agents. However marketing campaigns are carried on by big giants in diamond jewellery sector and the
sight holders of DTC which indirectly does marketing of our product. Also the DTC (Diamond Trading
Company) of De Beers Group internationally runs huge number of marketing campaigns which helps the
firms and processors like us to sell our product.
Projected Free Cash Flows and Financial Viability

Year of Operation 1 2 3 4 5 6
Costs Involved
Rent of Land & Building 55000 55000 55000 55000 55000 55000
Plant, Machinery & Equipments:
Ghanti (3) 18000 0 0 0 0 0
Saran (3) 16500 16500 16500 16500 16500 16500
Motor (3) 9000 0 0 0 0 0
Angoor (12) 1800 0 0 0 0 0
Katora (12) 4800 0 0 0 0 0
Russian Booter for shaping (1) 120000 0 0 0 0 0
Vajan Kaanti-100 carats capacity 8000 0 0 0 0 0
Eye glasses (20) 1000 0 0 0 0 0
Assort Light (3) 5400 0 0 0 0 0
Thread Grinding Machine (1) 11000 0 0 0 0 0
General:
Salary-14 employees 1386000 1386000 1386000 1386000 1386000 1386000
Electricity Bill 38500 38500 38500 38500 38500 38500
Miscelleneous Expenses 55000 55000 55000 55000 55000 55000
Maintenance Charges 15000 15000 15000 15000 15000 15000
Raw Materials:
Rough Diamonds-2750 carats 5500000 5500000 5500000 5500000 5500000 5500000
Total Cost 7245000 7066000 7066000 7066000 7066000 7066000

Revenue
Sale of rejected rough diamonds-550 carats @ 300 each 165000 165000 165000 165000 165000 165000
Sale of final polished diamonds-660 carats @ 16000 each 10560000 10560000 10560000 10560000 10560000 10560000
Total Revenue 10725000 10725000 10725000 10725000 10725000 10725000

Net Cash Flow 3480000 3659000 3659000 3659000 3659000 3659000

(Financial calculations are based on the assumptions mentioned in the above write up)