Can IGI’s 61% EBITDA Margins and Lab-Grown Diamond Growth Justify Its 24x P/E Valuation?
International Gemological Institute (IGI), one of the largest diamond certification companies, recorded a significant rise in its earnings during the last quarter of 2026, driven by the rising demand for lab-grown diamonds and the company’s improved operational efficiency. Unlike diamond manufacturers, IGI generates revenue by providing grading and certification services for diamonds, gemstones and jewellery, which requires a significantly lower level of capital investments.
With a market capitalization of Rs. 16,046.09 crore, the shares of International Gemological Institute Ltd were trading at Rs. 371.30 per share, down 3.24 percent from its previous closing price of Rs. 382.30 apiece. The stock trades at a P/E of 24.01x on a consolidated basis.
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Lab-Grown Diamonds Continue to Drive Revenue Growth
The company's consolidated revenue grew 31% year-on-year to Rs. 398 crore in Q2 FY27, while its EBITDA grew 39% to Rs. 244.5 crore. The net profit rose 43% to Rs. 185.8 crore, compared to Rs. 129.8 crore a year ago. The company's EBITDA margin increased from 58% to 61.4%.
The lab-grown diamonds category has become IGI's biggest certification segment, contributing significantly to the company's revenue. In Q2 FY27, the revenue from lab-grown loose diamond certification grew 37% year-on-year to Rs. 211.1 crore, while lab-grown jewellery certification revenue rose 47% to Rs. 35.6 crore.
Combined, the two segments accounted for Rs. 246.7 crore, or about 63.7% of IGI's total certification revenue of Rs. 387.5 crore. Natural loose diamond certification revenue rose 8% to Rs. 52.9 crore, while natural diamond jewellery certification grew 3% to Rs. 63.5 crore. The gemstone and other certification revenue jumped 331% to Rs. 24.4 crore, driven by the acquisition of American Gemological Laboratories (AGL).
The numbers suggest that while lab-grown diamonds continue to be IGI's fastest-growing segment, natural diamonds and gemstones offer diversification opportunities for the company.
Rising Certification Volumes Support Operating Performance
IGI issued 4.35 million certification reports during Q2 FY27 versus 3.45 million reports in the previous year, representing a 26% year-on-year growth. Certification revenue grew at a faster rate of 32%, reflecting that higher volumes came with improved average realisations.
Average realisation per report increased 4% year-on-year from Rs. 854 to Rs. 891, but decreased approximately 12% sequentially from Rs. 1,010 in Q1 FY27
The sequential drop was mainly attributed by management to the change in certification mix with lower contribution from lab-grown loose stones and higher jewellery contribution.
In addition, management noted that AGL contributed approximately two percentage points to the annual increase in average realisation, with the remaining two percentage points contributed by the underlying business.
This is an important distinction to make as higher average realisations do not always reflect higher certification fees. Changes in the mix of services can also impact revenue generated per report.
Strong Consolidated Margins, but India Profitability Faces Pressure
IGI's consolidated EBITDA margin improved by 340 basis points to 61.4% in Q2 FY27, compared to 58% in Q2 FY26, but its India standalone operations witnessed a contrasting trajectory.
The standalone revenue rose 27% to Rs. 305.6 crore and EBITDA grew 21% to Rs. 212.3 crore. As such, the standalone EBITDA margins decreased from 72.8% to 69.5%. Management cited a rise in employee costs, marketing expenses and commission costs related to expansion for the drop.
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However, the consolidated EBITDA margins remained above 60% driven by rising certification volumes and higher overseas contributions. Standalone results were below consolidated results underscoring the need to track these margins.
Cash Generation Strengthens the Earnings Profile
IGI's asset-light business model has also been conducive to healthy operating cash generation. During H1 FY27 consolidated operating cash flow came to Rs. 415.7 crore as against reported net profit of Rs. 351.6 crore.
This implies an operating cash conversion of roughly 118% of net profit. But cash flow benefited from working-capital release of around Rs. 66.2 crore driven by lower receivables.
Excluding working-capital benefit operating cash generation was about Rs. 349.5 crore which was broadly in line with reported profitability.
Consolidated revenue grew 27% to Rs. 768.8 crore in H1 FY27 while EBITDA climbed 34% to Rs. 468.3 crore. Net profit grew 37% to Rs. 351.6 crore indicating earnings growth outpaced revenue growth.
Can IGI's Valuation Be Justified?
At its price of approximately Rs. 371 per share, IGI commanded a market capitalization of around Rs. 16,046.09 crore and was priced at 24.01 times its trailing earnings.
The company's trailing twelve months consolidated profit came to approximately Rs. 666 crore on revenue of Rs. 1,457 crore. Its trailing operating profit margin was around 61%.
Management had guided for FY27 revenue growth of 15% and EBITDA growth of 20%. After stronger than expected results in H1, management suggested that full year growth should beat its prior guidance, and roughly follow the first-half trajectory.
At just over 24 times trailing earnings, IGI's fair valuation is justified by its strong operating margins, growing certification volumes and cash generation. However, its increasing reliance on lab-grown diamonds, swings in average realisations and pressure on standalone margins are important risks to consider.
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The company's recent results suggest strong operations, but its ability to continue delivering these results will be challenged by certification demand and its ability to maintain pricing and profitability as the industry matures.