vk.com/id446425943	Diamonds Watch
Global
Materials: Diversified Metals & Mining
	Mid-stream (cutting and polishing)

Figure 12: India’s share in diamond cutting and polishing

cutting		100%	10%		12%			12%			7%	6%
		90%									5%	4%
			9%		7%			6%
diamondsroughfrom	countriespolishing	80%
		70%
		60%
		50%									88%	90%
		40%	81%		81%			82%
importof and		30%
		20%
Net		10%
		0%
			2012		2013			2014			2015	2016
					India		China			Other

Source: Bain, VTB Capital Research

Figure 13: India polished diamonds net exports

2,500					18%							35%
						18%						30%
					YoY
						YoY
2,000			13%		1,439	1,696						10%
USDmn			1,270
			13%									25%
			YoY
			YoY									20%
1,500
												15%
1,000												5%
500												0%
												-5%
0								Feb-17		Nov-17	Feb-18	-10%
			2014	2015			2016		May-17 Aug-17			May-18 Aug-18
			Monthly run-rate
		India net polished exports, 3M MA										YoY, rhs

Source: GJEPC, VTB Capital Research

Figure 14: India polished exports vs rough imports

	250%
rough	200%		Mid-stream
MA
			stocks release
exports/4mnetpolished valueinimportsnet	150%		2015-17 avg
	100%
			Mid-stream
	50%		stocks accumulation
4m MA	0%	Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18 Jun-18

Source: GJEPC, VTB Capital Research

Figure 16: Global polishers’ margin improves in 2018

	20.0%
range	15.0%
margin	10.0%
Operating	5.0%
	0.0%
	-5.0%
	Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18 Jun-18 Nov-18

Source: Rapaport, Bloomberg, VTB Capital Research

Figure 15: Polished prices trim gains in 2H18

		8%
		7%
	%	6%
		5%
	gain,		4.3%
		4%
	price		3.4%
		3%
			2.9%
	YTD	2%	1.5%
		1%
		0%	-0.1%
		-1%

	31-Dec	31-Jan	28-Feb	31-Mar	30-Apr	31-May 30-Jun	31-Jul	31-Aug 30-Sep	31-Oct
	Rapaport indices:
	0.3ct	0.5ct	1ct		3ct	PolishedPrices.com overall index

Source: Rapaport, VTB Capital Research

Figure 17: Asian Star (Indian public polisher) EBITDA margin

	quarterly	7%
		6%
	margin,	5%
		4%
	EBITDA	3%
	star	2%
	Asian	1%
		0%

1Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q134Q131Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q18 Asian star EBITDA margin

Source: Company data, VTB Capital Research

26 November 2018

6

vk.com/id446425943	Diamonds Watch
Global
Materials: Diversified Metals & Mining
	Downstream (Jewellery)

Figure 18: Global diamond jewellery market structure

		Tiffany 2Q18: +8% YoY
	Tiffany 2Q18: double	Richemont Apr-Sep 18: +42% YoY*
		Signet 2Q18: +1.5% YoY
	digit growth YoY
		Total jewellery sales Jan-Aug: +9.3% YoY
	Luk Fook 3Q18:+4%
	YoY
	Chow Tai Fook
	3Q18: -2% YoY		22%
					52%
	Titan 3Q18: +32% YoY
			3%
	Chow Tai Fook 3Q18: +1%
	YoY		12%
	Luk Fook 3Q18: +18% YoY
	Tiffany 2Q18: +28% YoY		4%7%
	Richemont Apr-Sep 18: high
	single digit growth YoY*
	* Sales growth in all business areas;			US		Japan
	Global Jewellery Maisons sales growth in			Gulf		Mainland China
	Apr-Sep 18 is 9%.			India		Others

Source: US Census Bureau, VTB Capital Research

Figure 19: US jewellery and watches sales growth

15%

sales												7.4%		7.7%	8.1%		7.3%	10.8%		8.7%	8.9%
														8.3%			9.4%		10.7%
watchesandjewellery YoYgrowth,	10%	0.2%0.1%		0.1%		0.5% 1.1%				1.8%			6.2%				9.7%			8.5% 5.3%
																4.4%
	5%	0.8%	1.4%	2.5%		1.8%	4.7%	2.7%			4.5%
					2.7%				3.1%
TotalUS	0%	0.2%-		1.7%
	-5%		-1.1%
				-
		Jan-16	Apr-16	Jul-16	Oct-16		Jan-17		Apr-17			Jul-17		Oct-17			Jan-18	Apr-18		Jul-18
Source: IDEX, VTB Capital Research

Figure 20: China jewellery retail sales

	5.0																		-16% YoY in	15%
	4.5
				4.0							4.0		4.1						October	10%
	4.0
															3.8
	3.5			2.9																5%
USDbn	3.0																			0%
	2.5			2.4
																				-5%
	2.0	1.6
	1.5																			-10%
	1.0																			-15%
	0.5
	0.0		2010		2011		2012		2013			2014		2015		2016		Feb-17 May-17 Aug-17 Nov-17	Feb-18 May-18 Aug-18	-20%
						Monthly					run		-rate
				China jewellery retail sales, lhs															YoY, rhs

Source: Bloomberg, VTB Capital Research

Figure 22: Top-5* diamond jewellery retailers revenue and inventory continue recovery

50%

40%

30%	Jewellers started
	re-stocking

20%

10%

Jewellers de-stocking

0%

-10%

-20%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18
Top	5 retailers' inventories, YoY
Top	5 retailers' revenue, YoY

Source: Company Data, VTB Capital Research * Tiffany, Signet, Luk Fook, Chow Tai Fook and Chow Sang Sang

Figure 21: Hong Kong jewellery & watches retail sales

1.6												2% YoY in	40%
1.4							1.3					September	35%
													30%
1.2							1.1
				1.01.0									25%
1.0
									0.9				20%
USDbn0.8			0.7
									0.8				15%
0.6													10%
													5%
0.4
													0%
0.2
													-5%
0.0					2011			2014		2015		Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18	-10%
			2010		Monthly2012 2013 run-rate2016
		Hong Kong jewellery and watches retail sales, lhs											YoY

Source: Bloomberg, VTB Capital Research

Figure 23: Top 5* retailers inventories turnover (days) broadly flat YoY in 1-2Q18

		250
	days	200
	turnover,	150
	Inventory	100
		50

-

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

1Q18

Post-holiday sales re-stocking

Source: Company data, VTB Capital Research * Tiffany, Signet, Luk Fook, Chow Tai Fook and Chow Sang Sang

26 November 2018

7

vk.com/id446425943				Diamonds Watch
	Global
	Materials: Diversified Metals & Mining
				Valuation and forecasts
	Figure 24: Alrosa vs. peers valuation
	Company	Country	Price,	Mcap,	EV,		— P/E (x) —		— EV/EBITDA (x) —				— FCF yield —
			USD	USD mn	USD mn	2018F	2019F	2020F	2018F	2019F	2020F	2018F	2019F	2020F
	VTBC coverage
	Alrosa*	Russia	1.52	11,162	15,435	6.4	6.2	5.8	4.7	4.6	4.2	16%	15%	17%
	Global peers
	Petra	UK	0.51	442	964	12.1	10.0	7.4	4.4	3.7	2.9	-1%	19%	26%
	Gem	UK	1.48	206	256	6.5	10.1	9.6	2.5	3.4	3.1	18%	7%	12%
	Lucara Diamonds	S. Africa	1.41	559	519	17.4	9.9	10.9	6.8	4.2	4.3	1%	12%	10%
	Diamond median					12.1	10.0	9.6	4.4	3.7	3.1	1%	12%	12%
	Global miners
	VTBC coverage
	Norilsk Nickel*	Russia	17.6	27,851	35,076	6.5	5.8	5.4	5.7	5.1	5.0	16%	12%	12%
	Global miners
	BHP Billiton	Australia	23.7	118,839	134,496	12.8	12.8	13.6	5.6	5.8	6.0	9%	8%	8%
	VALE	Brazil	14.1	74,353	77,217	10.3	8.4	9.3	5.1	4.8	4.8	13%	12%	12%
	Rio Tinto	UK	48.7	86,500	98,016	10.2	11.3	11.7	5.4	5.6	5.7	10%	8%	8%
	Glencore	Swiss	3.8	53,358	83,629	7.7	7.9	7.9	4.9	4.4	4.2	15%	17%	16%
	Anglo American	UK	21.3	27,550	36,280	8.9	8.9	9.9	4.1	4.0	4.3	12%	11%	8%
	Median					9.6	8.6	9.6	5.2	4.9	4.9	13%	11%	10%

Source: Company data, VTB Capital Research estimates (marked with an *), Bloomberg consensus as of 20 November 2018 (all the rest)

Figure 25: Alrosa consensus EV/EBITDA vs. Global Miners

	9.0x			20%
EV/EBITDA	8.0x			10%
	5.0x			-20%
	7.0x			0%
	6.0x			-10%
FWD	4.0x			-30%
12mo	3.0x		4.6x, -1% vs.	-40%
	2.0x			-50%
			VTBC estimate
	1.0x		global miners	-60%
	0.0x	Nov-13 Apr-14 Sep-14 Feb-15 Jul-15	Dec-15 May-16 Oct-16 Mar-17 Aug-17 Jan-18 Jun-18	-70%
	Jan-13 Jun-13			Nov-18
		Discount, rhs

Alrosa cons. 12-m fwd EV/EBITDA

Global Miners 12-m fwd EV/EBITDA

Source: VTB Capital Research, Bloomberg consensus as of 20 November 2018

Figure 26: Alrosa consensus P/E vs. Global Miners

	20.0x		0%
	18.0x		-10%
EV/EBITDA	16.0x		-20%
	14.0x		-30%
	12.0x		-40%
FWD	10.0x		-50%
	8.0x		-60%
12mo	6.0x		-70%
	4.0x	VTBC estimate	-80%
	2.0x	6.2x, -30% vs.	-90%
		global miners
	0.0x		-100%
	Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15	May-16 Oct-16 Mar-17 Aug-17 Jan-18 Jun-18	Nov-18
	Discount, rhs	Alrosa cons. 12-m fwd P/E
	Global Miners 12-m fwd P/E

Source: VTB Capital Research, Bloomberg consensus as of 20 November 2018

Figure 27: Diamond jewellery retailers valuation and revenue growth expectations

Company	Country	Price	Mcap	EV	Revenue growth			EV/EBITDA, x				P/E, x		FCFE yield
		USD	USD mn	USD mn	2018F	2019F	2020F	2018F	2019F	2020F	2018F	2019F	2020F	2018F	2019F	2020F
Tiffany	US	102.4	12,529	12,701	9%	6%	5%	11.6	10.5	9.7	21.3	19.0	17.4	3%	3%	4%
Signet	US	52.8	2,740	4,022	0%	-1%	-3%	6.7	6.3	5.8	10.8	12.4	n/a	34%	13%	11%
Chow Tai Fook	China	0.9	8,860	9,625	10%	10%	7%	10.0	8.8	8.0	14.8	12.9	11.7	6%	6%	7%
Luk Fook	China & HK	3.2	1,874	1,705	13%	10%	7%	7.3	6.4	5.7	10.3	9.2	8.6	2%	6%	8%
Chow Sang Sang	China	1.6	1,090	1,140	13%	8%	8%	6.2	5.5	5.1	8.2	7.4	6.8	5%	1%	1%
Titan	India	13.0	11,571	11,723	4%	19%	18%	40.9	33.1	27.3	61.1	49.4	41.5	1%	1%	1%
Average					8%	9%	7%	13.8	11.8	10.3	21.1	18.4	17.2	8%	5%	5%
Median					9%	9%	7%	8.7	7.6	6.9	12.8	12.7	11.7	4%	5%	5%

Source: VTB Capital Research, Bloomberg consensus as of 20 November 2018

26 November 2018

8