Page 177 - RusRPTApr21

company will report its March diamond revenue on 9 April. ALROSA reported diamond revenue of $372mn in February, including $361mn in revenue from sales of rough diamonds and $12mn in revenue from sales of polished diamonds. The reported results showed a 7% y/y growth, although this growth comes against the low base of 2020. ALROSA’s revenue for January-February was $802mn (+7% y/y). Commenting on the reported results, ALROSA Deputy CEO Evgeny Agureev said that the market continues to support rough diamond sales, with the current balance of supply and demand remaining comfortable for both buyers and sellers. The reported results are in line with the Cycle 2 numbers reported by DeBeers (+52% y/y), ALROSA’s main peer in the sector. ALROSA will report its March diamond revenue on 9 April.
Alrosa’s Capital Markets Day provided an upbeat outlook on the global diamond market, not only for 2021, but also for further years, as the global luxury demand growth of 10% per annum it anticipates is to drive a deficit of rough diamonds of more than 30% by 2025.
As Alrosa plans to reduce inventories to historical lows and is only gradually returning to pre-COVID production levels, management hinted at further upward price pressures on the rough diamond market in excess of what was lost in 2020 (i.e. above the 10% increase already done YTD). Although we think miners will eventually prioritise inventory normalisation in 2021, which supports our positive estimates for Alrosa’s rough diamond revenues in 2021. Our unchanged 12- month Target Price of RUB 120 offers a 38% ETR: Buy reiterated.
Demand prospects improve, and not just in 2021. Management presented a positive outlook on the diamond market, stating that the deficit in rough diamonds would widen from 0% in 2020 to 31% by 2025 (of supply). The company expects a 10% CAGR in global personal luxury demand in 2021-23 to drive diamond demand. Management cited industry forecasts, which estimate the number of weddings in the US (the world’s largest diamond jewellery market) exceeding historically normal levels by 50% in 2021. At the same time, global rough diamond production is to see 21mnct of net closures by 2025 vs. 2019. We treat the forecasts as positive, as the demand CAGR is 5pp above our forecast, while we expect rough diamond production to decline 16mnct (we do not account for probable expansion projects).
2021 production rises and upside remains, medium-term guidance to be updated in May. We think improvements in the company’s outlook on demand was the main driver behind its increase to the 2021 production guidance from 28-30mncts to 31.5mncts. At the same time, the 37-38mnct run-rate (a normal pre-pandemic level of production) previously slated for 2022 onwards, now needs to be reconsidered in terms of the time required to achieve it. Management plans to reconfirm its production plans for 2022 onwards in May this year. We
177 RUSSIA Country Report April 2021 www.intellinews.com