Diamond Limited, a listed company is a leading player in India's organised jewellery retail sector, known for its diversified business in the trade,…

Diamond Limited, a listed company is a leading player in India's organised jewellery retail sector, known for its diversified business in the trade, manufacture, and sale of diamonds, precious stones, diamond-studded jewellery, as well as articles. The Company offers a broad range of jewellery items, with a particular focus on certified diamond jewellery. Their offerings cater to various market segments, including wedding jewellery, party wear, and daily wear, providing a comprehensive selection for customers across different occasions. This focus on certified diamonds is central to the Company's value proposition, ensuring quality and trust for its customers. Business Structure and Strategy Diamond Limited, as the holding company, oversees a diverse portfolio of subsidiaries, joint ventures, and associates, leveraging its presence across various regions to gain a competitive edge. The Company follows a decentralized management structure, delegating daily operational and decision-making responsibilities to designated personnel within its divisions or branches. This approach promotes autonomy and accountability while ensuring that each division's objectives align with the Company's overarching strategic goals. By operating as responsibility centres, managers are held accountable for the performance, results, and profitability of their respective divisions. This structure enables Diamond Limited to manage its diverse operations efficiently while staying aligned with its broader business vision. As part of its strategic expansion and supply chain optimization, Diamond Limited has undertaken various acquisitions. A few years ago, the company acquired Zircon Limited, a company specialized in the retail segment, through a forward integration strategy. This acquisition allowed Diamond Limited to leverage Zircon Limited's specialized retail expertise, strengthening the brand's presence in the final consumer market. By integrating Zircon's capabilities, Diamond Limited enhanced its ability to effectively market and sell its jewellery products, ensuring a seamless flow from manufacturing to retail. Global Expansion and Product Alignment Diamond Limited strengthened its global footprint in 2023 by acquiring Retail Gems S.p.A., a renowned Italy-based company. The Company is currently evaluating whether Retail Gems should procure Gem-Indo, diamond-studded jewellery item manufactured by Diamond Limited's Ahmedabad Division. The Ahmedabad Division has an annual production capacity of 1,20,000 units of Gem-Indo, while Retail Gems, with its smaller manufacturing capacity, can produce a similar item Gem-Milano, up to 50,000 units annually. In the Italian market, the local purchase price for an item similar to Gem-Milano is €1,600 (equivalent to 1,44,000) per unit. However, Diamond Limited is exploring the feasibility of transferring its item (i.e., product), suitably adapted to meet Italian cultural preferences, from the Ahmedabad Division to Retail Gems. The cost to the Italy division for such a transfer would be €1,700 (equivalent to 1,53,000) per unit. This price includes all associated costs, such as duties, taxes, and handling charges. For external sales in India, Gem-Indo is priced at 1,08,000 per unit. When sold to Retail Gems in its suitably modified version, the transaction is carried out at an arm's length price of €1,400 per unit. A total of 50,000 units of Gem-Milano are being transferred to Retail Gems, representing a significant portion of the Ahmedabad Division's annual production capacity. The current sales volume of the Ahmedabad Division is 1,00,000 units. The per-unit variable cost for Gem-Indo in India is 80,000 for external sales. However, for the transfer of Gem-Indo to Retail Gems, the variable cost per unit is 74,000, reflecting potential efficiencies or savings from the internal transfer arrangement. Additionally, an adoption cost of 24,000 per unit is incurred to modify the item for Italian cultural preferences, primarily due to minor design changes. The tax rates applicable to both entities differ and significantly influence the profitability of the transaction. The Ahmedabad Division is subject to a tax rate of 30%, while Retail Gems in Italy operates under a higher tax rate of 40%. These tax rate differences could impact the financial outcomes for both entities, particularly with respect to profitability and tax liabilities. It is assumed that the exchange rate will remain consistent in the near short term. Sustainability and Life Cycle Costing Aligned with its commitment to sustainability, Diamond Limited integrates life cycle costing into its product strategies. This methodology accounts for all costs throughout an item's life cycle, including investment, operation, maintenance, and disposal. For its flagship item "Aurora," the Company employs a comprehensive life cycle costing approach, covering all costs incurred throughout the item's lifecycle. These costs include 460 lakh for materials, 100 lakh for research, 50 lakh for distribution, 300 lakh for development, 380 lakh for labour, 500 lakh for overheads, 30 lakh for disposal, 500 lakh for training, 170 lakh for maintenance, 85 lakh for warranty claims, 200 lakh for design and testing, and 70 lakh for environmental cleanup. This holistic approach underscores the company's commitment to sustainability, innovation, and operational excellence. Audit and Financial Oversight Amit and Amod LLP, Chartered Accountants, have been appointed as the statutory auditors of Diamond Limited for the financial year 2024-25. Amit and Amod LLP recognize that related party transactions, common in business operations, pose potential risks of material misstatement or fraud in financial reporting. To address these risks, the auditor sent an email to Ms. Ratna Mullick, the CFO of Diamond Limited, requesting a comprehensive list of related parties and the Company's related party policy. The following response was received via email: Ratna Mullick/ Chief Finance Officer / Diamond Limited From: "Ratna Mullick" < [email protected] > Sent: 15th April 2025 10:00 To: "partner-1" < [email protected] > Cc: "Manik Paul" Subject: Related Party Disclosure Attachments: Group Chart - Ind AS 24.pdf; Related party policy.pdf CA. Amit Gupta, Trust you are doing well! We have received your email relating to related parties and related party transactions of our Company. Diamond Limited, in ordinary course of business, enters into transactions with a Related Party or parties. These related parties have been identified as per applicable laws/ accounting requirements. Please refer to the attachment for the Group Chart as per the requirements of Ind AS 24. The Company has also formulated a policy on Related Party Transactions which regulates all transactions between the Company and its Related Parties. Relevant excerpts from the related party policy of the Company are enclosed. We hope that the above email provides the necessary information. You can also connect with Mr. Manik Paul, Senior Finance Officer if you have any further queries. Regards, Ratna Mullick The following day, the auditors met with Mr. Manik Paul and requested a comprehensive list of related party transactions undertaken during the current and previous financial years. Mr. Paul promptly provided the requested details, which are included in the attached Annexure. Subsequently, the auditors designed and executed procedures to gather sufficient and appropriate audit evidence to verify that the related party relationships and transactions were properly identified, accounted for, and disclosed in the entity's financial statements, in compliance with the requirements of Ind AS 24. Upon completing these procedures, the auditors sent an email to Mr. Manik Paul and Ms. Ratna Mullick. CA. Amit Gupta/ Partner / Amit and Amod LLP From: "partner-1" < [email protected] > Sent: 20th April 2025 10:00 To: "Ratna Mullick" < [email protected] > Cc: "Manik Paul" < [email protected]>; "Team 1" Subject: Preliminary Audit Observations: Related Party Date: 20th April 2025 Ms. Ratna Mullick and Team, We appreciate the support provided by your team in our audit of financial statements. During our audit, we have observed the following matters: Sapphire Limited not identified as a related party From the Group Chart shared, we understand that Sapphire Limited is a subsidiary of Coral Limited (i.e. joint venture). Under Ind AS 24 a subsidiary of a joint venture is a related party. Request you to please consider the requirements of Ind AS 24 - especially paragraph 12 of Ind AS 24. Audit Committee approval not obtained The above analogy should be extended to Jade Limited – a step-down associate of Emerald Limited (company's associate). The company though its associate (Emerald Limited) would be able to exercise significant influence on the step-down associate - Jade Limited, as well. During the year, the Company has purchased stone items worth 595 lakhs from Jade Limited. These related party transactions should have been entered into with prior approval of the Audit Committee as provided under Regulation 23 of SEBI Listing Regulations. The approval would be required despite that Jade Limited is not material entity for Emerald Limited. Non-monetary benefit to KMP Ms. Ratna Mullick, key managerial personnel, uses company owned car and should be disclosed as a related party transaction in the financial statements. Relevant details are as follows: Purchase price of the car -380 lakhsValue of perquisite under the Income Tax Act, 1961 -35 lakhsDepreciation recognised in the financial statements i.e.76 lakhs Sales not at market rate During the year the company has sold diamond-studded jewellery items amounting to 20 lakhs to Zircon Limited a subsidiary. During the year sales of the same quantity of items made to unrelated party amount to 25 lakhs. It appears that the related party transaction was not at arm's length. Further, it is important to note that Zircon Limited is not eligible for a full input tax credit (ITC). We solicit your responses to the above at the earliest, so that we can proceed further. Regards, Amit Gupta Group Chart - Ind AS 24.pdf DIAMOND LIMITED Diamond Group Coral Limited Diamond Jewellery JV of Diamond- which hold 50% share capital Emerald Limited Diamond Jewellery Associate -25% shares held by Diamond Sapphire Limited Designing & Crafting Subsidiary of Coral- which hold 51% share capital Ruby Limited Diamond Processing Subsidiary of Emerald- which hold 51% share capital Jade Limited Stone Processing Associate of Emerald- which hold 22% share capital Amethyst Limited Retail Operations Subsidiary of Diamond- which hold 80% share capital Topaz Limited Retail Operations Subsidiary of Diamond- which hold 100% share capital Zircon Limited Retail Operations Subsidiary of Diamond- which hold 95% share capital Retail Gems S.p.A. Retail & Processing Subsidiary of Diamond- which hold 100% share capital There has been no change in the shareholding structure during the current and previous financial years. Related party policy.pdf Identification of Related Parties and Related Party Transactions Every promoter, director and key managerial personnel (KMP) of the Company and its subsidiaries/ associate/ Joint venture shall: at the time of appointment;periodically – as required by the company or applicable lawwhenever there is any change in the information already submitted, provide requisite information about his / her relatives and all firms, companies, body corporates, or other association of individuals, in which such promoter, director or KMP is interested, whether directly or indirectly, to the company or the subsidiary/ associate/ Joint venture (as the case may be). Every such promoter, director and KMP shall also provide any additional information about the transaction, that the Board/ Audit Committee may reasonably request. All the transactions which are identified as Related Party Transactions and subsequent modifications thereof, shall be approved by the Audit Committee in the manner specified under the applicable laws and regulations. The Audit Committee shall consider all relevant factors while deliberating the Related Party Transactions for its approval. Any member of the Audit Committee who has a potential interest in any Related Party Transaction shall recuse himself and abstain from discussion and voting on the approval of the Related Party transaction. A Related Party Transaction which is (i) not in the ordinary course of business, or (ii) not at arm's length basis, would require approval of the Board or of shareholders. Review and approval of Related Party Transactions In case any Related Party Transactions are referred by the Company to the Board for its approval due to the transaction being (i) not in the ordinary course of business, or (ii) not at an arm's length basis, the Board will inter alia consider factors such as, nature of the transaction, material terms, the manner of determining the pricing and the business rationale for entering into such transaction and any other information the Board may deem important/ relevant for taking decision on a proposed transaction. On such consideration, the Board may approve the transaction or may require such modifications to transaction terms as it deems appropriate under the circumstances. Any member of the Board who has any interest in any Related Party Transaction will recuse himself and abstain from discussion and voting on the approval of the Related Party Transaction. If a Related Party Transaction is (i) a material transaction as per the Listing Regulations, or (ii) not in the ordinary course of business, or not at arm's length basis and exceeds certain thresholds prescribed under the Companies Act, then such Related Party Transaction and any subsequent Material modification thereto, shall require shareholders' approval by a resolution. In such case, any member of the Company who is a Related Party, irrespective of being related to the said transaction or not, shall not vote on resolution passed for approving such Related Party Transaction. Annexure: Details Provided by Mr. Manik Paul 31 March 2025 (₹ lakhs) 31 March 2024 (₹ lakhs) Sales of diamond-studded jewellery items to Topaz Limited – Subsidiary 17,076 14,340 Sales of diamond-studded jewellery items to Zircon Limited- Subsidiary 20 25 Sales of diamond-studded jewellery items to Amethyst Limited- Subsidiary 36 15 Purchase of diamond-studded jewellery items from Emerald Limited – Associate 11,990 – including purchase of equipment for 6,960 Nil Purchase of stone items from Jade Limited – Associate of Emerald Limited which is an associate of the company 595 Nil Purchase of diamond items from Ruby Limited – Subsidiary of Emerald Limited which is an associate of the company 80 75 Purchase of diamond-studded jewellery items from Coral Limited – Joint venture 1,416 Nil Sale of diamond-studded jewellery items to Sapphire Limited – Subsidiary of the Joint Venture (i.e. Coral Limited) 186 230