Sarine Technologies — Leader in diamond manufacturing equipment

Sarine Technologies — Leader in diamond manufacturing equipment

Sarine is an established leader in equipment and services for the diamond manufacturing industry (the so-called “midstream”) with its own proprietary technology. Through new products and services, the company has entered the higher value-add downstream retail segment of the industry, which is more than twice the size of its traditional midstream market and commands higher valuations. This potentially underpins attractive growth and share price prospects over the medium term. Investors looking for direct exposure to the diamond industry may find the stock of interest in its initial stages of entering new markets.

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Sarine Technologies

Leader in diamond manufacturing equipment


SGX research scheme

30 May 2017



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Last reported net cash as at 31 March 2017


Business description

Sarine is the leading provider of equipment and services for the diamond manufacturing industry. These help to automate planning and maximise yield. It has also developed products that allow it to enter the much larger and more profitable wholesale and retail segments of the industry.


Leading market position, strong customer base and proprietary technology

Expanding into new and larger addressable downstream market.

Strong balance sheet and a net cash position.


Earnings heavily reliant on low-profitability customers.

Low liquidity.

Copyright infringement.


Helena Coles

+44 (0)20 3077 5700

Andy Chambers

+44 (0)20 3681 2525

Sarine is an established leader in equipment and services for the diamond manufacturing industry (the so-called “midstream”) with its own proprietary technology. Through new products and services, the company has entered the higher value-add downstream retail segment of the industry, which is more than twice the size of its traditional midstream market and commands higher valuations. This potentially underpins attractive growth and share price prospects over the medium term. Investors looking for direct exposure to the diamond industry may find the stock of interest in its initial stages of entering new markets.

Expanding into a much bigger market

Sarine is the market leader in precision equipment for the midstream segment of the diamond industry. Its automation products have transformed the diamond manufacturing process and attest to the company’s strengths in technology and innovation. Sarine has more recently developed technology that is also relevant for wholesalers and retailers, potentially transforming the way polished diamonds are sold and certified. The downstream market is significantly larger than midstream, generating revenues of around US$74bn compared to US$19bn in 2016.

Strong cash flow generation and balance sheet

Sarine’s ability to succeed in its expansion can be supported by the strength of its existing business, which generates strong cash flows and recurring revenue. A debt-free balance sheet, cash and cash equivalents of nearly US$20m and a further US$21m in short-term deposits is ample to support its growth and ongoing research and development spend. Furthermore, Sarine is past the peak of its investment cycle, which should allow ROEs to improve.

Valuation: Execution key to the valuation

Sarine’s FY17e P/E of 20.3x appears demanding, but falls to just 14.6x in FY18e. A premium multiple can be expected for a company that commands market leadership and proprietary technology. Leading jewellery retailers trade at significantly higher multiples, which may be instructive given Sarine’s new business focus in the downstream industry segment. Evidence of Sarine’s ability to succeed in its downstream expansion should be supportive of the valuation. Consensus estimates suggest EPS growth for 2017 and 2018 of 19% and 40% respectively, which would also improve ROE and help underpin a high valuation.

Consensus estimates







































Source: Average of Macquarie and CIMB estimates May 2017.

Sarine Technologies is provided through the SGX research scheme.

Company description: Technology equipment leader

Sarine Technologies is the leading provider of technology equipment and services for the diamond industry. Its business is mostly exposed to the midstream segment, which encompasses a broad range of activities starting with the purchase of rough stones through to the delivery of polished stones for jewellery retailing. More recently, it has developed technology and products relevant to wholesalers and retailers of polished diamonds, enabling Sarine to extend its addressable market to the larger and more profitable downstream segment of the diamond industry. The company’s headquarters are in Israel where it was established in 1988. It was listed in April 2005 on the Singapore Stock Exchange at S$0.272.

Almost all Q117 revenues are attributable to midstream customers (manufacturers). 80% of revenues came from India, reflecting the country’s dominance as a diamond manufacturing centre (accounting for 90% of all stones polished worldwide by volume). Non-recurrent revenues (58%) are generated from sales of capital equipment and recurrent revenues (42%) from per-usage charges of installed equipment (owned by the manufacturer or available for use in one of its service centres).

Exhibit 1: Revenues by geography, Q117

Exhibit 2: Revenues by segment, Q117

Source: Sarine

Source: Sarine

Exhibit 1: Revenues by geography, Q117

Source: Sarine

Exhibit 2: Revenues by segment, Q117

Source: Sarine

Business model and products

Sarine’s business model is to provide technology and automation solutions for the diamond industry and add economic value at each stage of the value chain. Historically, it has focused on the midstream manufacturing segment where its products now serve virtually all aspects of manufacturing. It is the dominant player with an estimated 70% global market share in midstream planning and grading equipment. More recently, Sarine has developed products and services that are also relevant to the wholesale and the retail value chain. Sarine believes these products will allow it to extend its addressable market to the downstream segment of the diamond industry, creating significant future growth opportunities (see Exhibit 3).

Exhibit 3: Sarine’s products by use and client type

Product use

Client type

Product family (all trademarked)

Rough diamond evaluation

Rough wholesaler and manufacturer

Galaxy, DiaExpert, Advisor

Planning optimal cutting of rough diamonds into polished stones


Galaxy, DiaExpert, Advisor

Cutting and shaping rough diamonds


Quazer, Strategist

Optimal polishing and finishing of diamonds for best carat/cut trade-offs


DiaMension, Instructor

Polished diamond evaluation according to 4Cs and light performance

Manufacturer, gem laboratory, polished diamond wholesaler and retailer

DiaMension, Sarine Profile

Polished diamond branding

Manufacturer, gem laboratory, polished diamond wholesaler and retailer

Sarine Profile

Polished diamond wholesale and retail trade

Manufacturer, wholesaler, retailer

Sarine Profile

Source: Sarine

Planning and manufacturing products (midstream)

Sarine’s planning equipment and software optimise the utilisation of the rough diamond. High-precision geometrical modelling and mapping of internal inclusions enable the automatic prediction of the post-manufacturing value of a stone and its various options. This allows the manufacturer to choose how best to utilise the rough stone, for example to trade off carat (size) against clarity and cut to suit different end-market preferences. The relevant product families for planning and optimisation are Galaxy, DiaExpert and Advisor software. In addition to selling the equipment, Sarine applies a per-usage charge per carat. A pay-per-use service at a higher price is also available at its services centres in Mumbai, Surat, Ramat-Gan, Antwerp, Moscow, Johannesburg, Gaborone, Windhoek and New York.

Integrated with its planning equipment are its systems for cutting, shaping, polishing and finishing of rough diamonds (Quazer, Strategist, DiaMension and Instructor software). These services are also available as a per-carat service in multiple locations.

Using the combination of these technologies can raise the achievable yield of a polished stone’s weight from under 40% to over 50%, a 25% benefit to the manufacturer.

Evaluation and trade products (midstream and downstream)

Sarine’s Profile family encompasses multiple products and services that enable a stone to be quantifiably viewed digitally. Sarine has developed technology that enables multi-faceted viewing of a stone (for example in three dimensions, from 360 degrees in all axes, up to 40x magnification). This allows a stone to be accurately assessed for characteristics including cut, clarity, brilliance and inclusions even without the stone being physically present. Profile also has the capability to inscribe polished diamonds, which can be used for a number of purposes including branding or identification. Profile helps improve buyer confidence at all stages from wholesaler to retailer to customer and helps improve inventory management throughout the chain (as the stone need not be physically present for viewing). Sarine charges US$35 per carat for the use of its Profile service and the company believes the immediate addressable market represents the brand name stones, which number around 500,000 pa (at an average of 0.7 carats), or over US$12m. The likely trend is for more stones to become marketed under a brand, each with its own ‘story’ and gemological profile. This trend should support significant growth given annual production of over 3m stones of over 0.5 carats.

Sarine Profile was launched in 2015 and accounted for 2% of revenues last year. It is being well received, particularly in Asia where it has been adopted by leading retailers in China, Japan, Singapore and Australia. The company expects Profile to account for 5% of revenues in 2017.

Sarine is currently testing new technology for automated and objective grading of a polished stone’s clarity and colour. If successful, this will give Sarine the capability to automate evaluation of diamonds against the 4Cs1(it is already established in cut grading where its technology has been adopted by virtually all of the gem labs including the Gemological Institute of America [GIA]).

The 4Cs are carat (weight), cut, clarity and colour.

The overall certification business generates revenues of over US$500m for around 7m reports a year of stones typically above 0.2 carats. Sarine believes the introduction of cost-effective, consistent and reliable automated grading could expand certification to stones of above 0.1 carats and increase the size of the addressable market value by 50% to US$750m. Certification is a highly profitable business as the capital cost of a laboratory is around US$1.5m, while prices for reports range from $50-100 per carat.

Potential customers in the certification business come from across the entire diamond industry value chain from manufacturers to gemological laboratories to retailers. The industry is growing as retailers and consumers are increasingly demanding reliable third-party verification to enhance confidence and achieved prices. Sarine has yet to finalise its business model and options include co-operation with existing gemological laboratories, supporting self-certification by major manufacturers or leading retailers, some of which already have independent laboratories, or setting up its own laboratories. Should Sarine decide to operate its own laboratories, it believes it can charge US$80-100 per carat for grading services and offer a package to include Profile services. The company targets commercial launch of this technology towards the end of 2017.

Investment case

Strong market position. According to the company, Sarine commands around 70% market share in midstream planning and grading equipment and services. It is widely recognised as the technology leader in this field, which in turn has allowed it to defend its market position. Sarine believes no other company in its field holds as broad a portfolio of products and intellectual property. Its customer base attests to the strength of its products and reputation. It includes retailers Tiffany & Co and Chow Tai Fook; all major gemological laboratories including the Gemological Institute of America (GIA) and the American Gem Society Laboratories (AGSL); and leading manufacturers Kiran and Rosy Blue.

Entry into polished diamond products and services significantly extends its addressable market. Sarine’s new products, Profile and potentially diamond grading, allow the company to move into the higher value-add wholesale and retail segment of the diamond industry, which commands higher margins. Historically, Sarine operated in the midstream market, which is characterised by fragmented manufacturers operating on low margins. In 2016 this segment generated revenues of US$19bn compared to the downstream market of US$74bn (source: Sarine). The immediate addressable market for Profile is over US$12m, based on Sarine’s assumption that some 500,000 stones a year are sold as a ‘branded’ product. The company expects this to double over the next four to five years. Meanwhile, the certification business generates over US$500m pa, is highly profitable and has significant growth potential.

Improvement in revenue mix and profitability, reduced earnings volatility. A higher proportion of recurrent revenues, broadening customer base and geographical diversification should improve the quality of revenues and reduce volatility. Historically, Sarine’s revenues were entirely driven by equipment sales, which are heavily concentrated in India and were volatile. The company modified its business model to charge usage fees for its products, starting with the launch of the Galaxy family of products in 2009. Recurrent revenues, now 42% of total revenues, should continue to increase as Galaxy’s installed base continues to grow (316 units at end March 2017) and new products also operate under the per-usage model. An increased proportion of recurrent revenues should reduce overall revenue volatility. In 2015 when market conditions were particularly weak, Sarine’s equipment sales fell by 55% while recurrent revenue fell significantly less, down 25%. Volatility should also be reduced as it gains downstream customers where profitability is significantly higher than that achievable among its midstream customers. Furthermore, revenues can become more geographically diversified as retailers are not concentrated in India. Recent new Profile customers are located in China, Japan, Singapore and Australia.

Strong financial performance supports Sarine’s expansion. The company’s financial position is sufficiently strong to allow it to continue to invest to help defend its market position and support its growth into new business areas. Sarine has a strong balance sheet and, as at end March 2017, had no debt and had cash and cash equivalents of US$19.7m and short-term investments (bank term deposits) of a further $21.2m.

Industry conditions improving, long-term potential attractive. 2016 saw the continued recovery from very challenging conditions in 2015. Sarine observes industry activity to be healthy so far this year and, importantly, there is evidence of a recovery in the China market after weak conditions the previous two years. Long-term industry prospects are underpinned by structural growth in the middle class, in China and India in particular (already the second and third largest polished diamond consumers respectively).

Market overview

Sarine has traditionally operated within the midstream segment of the diamond industry’s value chain, depicted in the dark green box in Exhibit 4. New products enable the company to move into the significantly larger retail segment. Meanwhile, the company’s strength in technology and automation makes it well placed to benefit from many of the structural trends in the midstream and downstream segments of the industry.

Exhibit 4: Diamond industry value chain (2016)

Source: Sarine


Sarine’s products and services have traditionally focused on the midstream segment of the diamond industry. This segment of the value chain encompasses an extensive range of activities from the purchase of rough diamonds to the completed jewellery piece for retail, and generated revenues of around US$19bn in 2016. The key players in this segment are cutters and polishers, Sarine’s main customer base. Midstream is arguably the most structurally challenged of the three segments with low margins, high fragmentation and squeezed financing as banks have become increasingly reluctant to lend in this area. These characteristics have driven the following trends, which continue to prevail:

Increasing use of automation. This is particularly important given the very thin margins faced by most midstream players. A diamond loses around 60% of its weight in the manufacturing process. Automation can improve the achieved yield of the polished stone’s weight from 40% to over 50%.

Increasing use of technology to manage inventory. Margin pressures drive the importance of being able to turn around stones quickly and finding buyers.

Consolidation. Over 5,000 players constitute the midstream market. The majority of these achieve low single-digit profit margins. Survival for the smaller players will require investment in efficiency and strong balance sheets, particularly as financing is now less readily available.


According to De Beers,2 in 2015 the US was the largest market for diamond retail sales at around 45% global market share. China and India were the second and third largest markets at 14% and 7% respectively, but represent the greatest growth potential given their more rapid economic growth, urbanisation and rising middle classes. While the US market is more stable and will continue to be the most important market for some time, changing trends present good opportunities in this market. In the US, the consumer is now younger, buying jewellery for themselves and showing preference for brands. These structural trends should drive:

The Diamond Insight Report 2016.

increased demand for grading and more sophisticated evaluation of the polished stone. Consumers in Asia value the quality of the diamond (clarity and brilliance in particular) over the size of the stone and demand grading of smaller stones which, typically, would not be graded in the traditional US market. The increased preference for a ‘branded’ stone is also driving demand for reliable third-party validation and consumers are willing to pay more for such stones;

demand for more transparency and consistency of certifiers. There is no industry standard for the grading of diamonds and inconsistencies in grading have been problematic for the industry. There is pressure to improve transparency and consistency of grading through establishing a common standard and use technology to reduce the judgemental elements. The GIA is by far the largest certifier and provides grades for around 35% (by value) of the world’s production (around 14,000 stones per day). However, the cost of setting up a certification business is modest and, in an unregulated market, features many small laboratories; and

innovation in the retail experience. Younger buyers and Asian buyers represent the growth driver for jewellery retailing. These buyers are increasingly educated about diamonds and are more demanding of a differentiated, branded product. Technology allows retailers to provide a better, more visual and informative buying experience for these customers. US wholesaler, GN Diamond, and leading Japan retailer, K-Uno, have both recently announced the adoption of digital visual tools to enhance customers’ experiences.

Cyclically, the industry has recovered from the challenging 2015 environment, which was particularly acute for midstream players due to inventory overhang combined with unprecedented, ill-conceived and overly aggressive pricing of rough stones, which led to unsustainably poor margins. This was exacerbated by weak polished diamond demand, mainly due to China’s economic slowdown and anti-corruption policies. Market conditions started to improve in 2016 on the back of stronger economies globally, normalised inventory levels and margin recovery, particularly at the midstream. So far this year, there is some evidence to suggest that the recovery momentum for the industry has continued into 2017, in particular for China. Jewellery sales in China improved over the key Chinese New Year period (February) and Chow Tai Fook’s (China’s largest jewellery retailer) operational data for the first quarter of 2017 showed like-for-like growth of 12% and 4% respectively for China and Hong Kong. Meanwhile, Sarine observes upstream supply and inventories to be in equilibrium.


Income statement

Sarine recently reported Q117 results, which showed an improvement in revenues (up 5.1% y-o-y) offset by higher expenses, resulting in a decline in net earnings of 17% y-o-y.

The increase in revenues was attributable to higher equipment sales and recurring revenues. During the quarter, Sarine delivered 17 Galaxy family systems, taking the installed base to 316 systems, which underpins prospects for recurrent income growth.

Growth in expenses, however, offset the improvement in revenues. These were mainly driven by the following during Q117:

Research and development (R&D) expenses rose 18%, primarily associated with the commercialisation of its clarity and colour grading technology. The company expects this level of R&D spend to be at its peak level with scope for spending to normalise back to around US$10-12m pa towards the end of the year.

Sales and marketing expenses rose 12% mainly due to the roll-out of Sarine Profile (marketing, advertising and business development), particularly in the Asia Pacific region.

IP protection-related costs pushed up general and administration expenses by 23%. These represent professional fees as a result of Sarine undertaking legal action to defend its copyright and patents. Management expects these expenses to be around the same level in Q2, but not to be prevalent thereafter.

Currency effects from appreciation of the new Israeli shekel (NIS). The US dollar (reporting currency) depreciated by c 5% against the NIS y-o-y, while most salary expenses are incurred in NIS and almost all R&D costs and around a third of the remaining costs are paid in NIS.

Exhibit 5: Q117 income statement summary




% change







Gross Profit






Research and development expenses




Sales and marketing expenses




General and administration expenses




Profit Before Tax (as reported)




Net income (as reported)











EPS (as reported) (cents)





Dividend per share (cents)





Source: Sarine

Q117 results follow a strong 2016, which showed a significant recovery in revenues following a very challenging 2015. FY16 revenues rose nearly 50% to US$72.5m. This was primarily driven by much better equipment sales, which rose by c 77%, including record delivery of 84 Galaxy systems.

Recurring revenue at the end of Q117 accounted for around 42% of total revenue, of which revenues for its polished diamond products and services (Profile referred to by the company as Trade) were around 2%. The company expects this segment to increase revenue to around 5% of total sales this year.

A peaking of the current investment cycle gives scope for ROE to improve. Despite a significant recovery in 2016, Sarine’s profitability remained below its 2014 peak ROE of 34% (see Exhibits 6 and 7). Management believes that, following a multi-year investment cycle that included establishing new premises (New York and Surat), as well as development of new products and services (Profile and grading), capital expenditures can now start to moderate. At the same time, these investments should start to reap rewards in terms of revenues and the company is optimistic that these can become meaningful from 2018 which, in turn, could help restore ROEs towards previously achieved levels of over 30%.

Exhibit 6: Revenues and margins

Exhibit 7: Net income and ROE

Source: Sarine

Source: Sarine

Exhibit 6: Revenues and margins

Source: Sarine

Exhibit 7: Net income and ROE

Source: Sarine

Balance sheet and cash flow

Sarine has a strong balance sheet. As at end Q117, the company has no debt, cash and cash equivalents of US$19.7m, as well as short-term investments (bank term deposits) of US$21.2m.

Historically, the company has financed its development and expansion internally, without debt, and the current financial position should allow this to continue. Capital expenditure over the past three years was elevated at around US$3-7m per annum due to significant investment in a property in New York City (International Gem Tower) costing around US$6m and a new facility in Surat, India costing around US$6.5m. Surat completed this year and is likely to incur a further US$1.5m this year, but overall, the company expects capital expenditure to moderate this year. Potentially significant investments on the horizon could include the development of its own gem laboratories to support its new polished diamond grading business. Management has yet to determine whether this will be necessary. The required investment of around US$1.5m per laboratory would be well within the company’s capability.

Sarine’s dividend policy is to pay 2.5 US cents every six months and bonus dividends if appropriate. In 2016 the company paid 4.5 US cents reflecting its optimistic outlook.

Exhibit 8: Financial summary

Year end 31 December








Income Statement













Profit Before Tax (as reported)






Net income (as reported)















EPS (as reported) – (cents)







Dividend per share (cents)















Balance Sheet







Total non-current assets







Total current assets







Total assets







Total non-current liabilities







Total current liabilities







Total liabilities







Net assets








Shareholders’ equity














Cash flow







Net cash from operating activities







Net cash from investing activities







Net Cash from financing activities







Net Cash Flow







Cash & cash equivalent end of year







Source: Sarine


Sarine trades on a trailing 12-month P/E of 24.3x. Consensus shows 2017 and 2018 forecast P/E of 20.3x and 14.6x respectively, and expected EPS growth of 19% and 40%. We note there are only two broker estimates for the forecast period.

Sarine’s valuation and upside is mainly dependent on its expansion in the downstream segment, which should further support earnings growth and improvements in profitability and returns. Some premium can be expected given Sarine’s industry position and leadership in technology.

ROE has scope to improve towards 2014 levels (34%) as the company believes it has passed the peak of its current investment cycle and that 2017 represents a transition year where expenditures peak while revenues from investments can become meaningful from 2018.

Success in the downstream polished diamond businesses could support earnings growth and a valuation re-rating. We have not identified comparable listed peers against which to evaluate Sarine. In the peer comparison table (Exhibit 9) we show two Indian companies, primarily engaged in midstream manufacturing. On historic P/E, these companies are modestly valued compared to Sarine, which is reasonable in view of the low margins, market fragmentation and volatile earnings that characterise this segment of the market. Low historic dividend yields indicate possible pressures on financing and the need to preserve cash. Given Sarine’s focus on expanding into the downstream market, it is instructive to look at players in this area with strong brands and balance sheets. Chow Tai Fook (the largest jewellery retailer in China and Hong Kong) and Tiffany & Co both trade at significant premiums to Sarine on forward P/E, but at similar EV/EBITDA levels. The P/E premiums are likely a reflection of their very strong brands and market positions in jewellery retailing. Chow Tai Fook also stands out because of its yield of nearly 6%.

Exhibit 9: Peer comparison


Market cap (bn)

Trailing 12-month PE (x)

P/E (x)


Dividend yield








Gitanjali Gems








Asian Star








Chow Tai Fook








Tiffany & Co








Sarine Technologies








Source: Bloomberg. Note: Prices as at 30 May 2017.

Management, organisation and corporate governance

Sarine is listed in Singapore and incorporated in Israel, and follows the corporate governance requirements of these jurisdictions. The important principles, which are aligned with the UK Corporate Governance Code, are as follows:

There are at least three independent directors.

The CEO and chairman roles are separated.

The members of the audit committee should be composed of independent directors.

Sarine has seven members on its board of directors including four independent directors.

At the recent AGM on 25 April, three longstanding directors retired and a new director, Ms Varda Shine, was appointed. Ms Shine has over 30 years’ experience in the diamond industry and was CEO of De Beers’ Diamond Trading Company (DTC) between 2006 and 2014. The company is considering seeking additional directors to the board to add experience and diversity, in particular in the area of polished diamond retailing.

On 1 May 2017, longstanding CEO Uzi Levami retired and was replaced by David Block, previously the group’s deputy CEO and chief operating officer.

Key members of management and board:

Daniel Glinert, chairman of the board. Mr Glinert has been an executive director and chairman of the board since 1999. He has over 40 years’ experience in various high-tech industries (including military, semiconductor and industrial applications) in research, development and management positions in Israel and the US. Mr Glinert founded and managed Interhightech in 1982. Prior to that, from 1997 to 1982, he worked for E-Systems Inc (now a division of Raytheon) on a development programme for the Israel Air Force. Mr Glinert served in the Israel Air Force.

David Block, CEO since May 2017. Mr Block was the group’s deputy CEO and chief operating officer since 2012. He joined Sarine in 2001 and, prior to becoming deputy CEO and COO, held various positions in the group including CEO of Sarine India and VP of sales where he was responsible for the group’s worldwide sales. Mr Block holds an MBA from Kellogg-Recanati School of Business, a joint degree with Northwestern in the US and Tel Aviv University.

William Kessler, chief financial officer. Mr Kessler joined Sarine in 2009 with over 25 years of corporate and Wall Street experience, working with publicly listed and private companies in the US and Israel.

Abraham Kerner, VP of research and development. Mr Kerner has held this position since 2009, prior to which he was chief technological officer. He is an engineer by background with expertise in precision motion control systems and accurate measuring machines for diamonds. He joined Sarine in 1995.

Ron Ben-Ari, VP of product management with responsibility for all the company’s products. Mr Ben-Ari joined Sarine in 2003. From 2013 to 2016 he was responsible for the midstream businesses, including inclusion scanning solutions and rough diamond planning products. He managed the launch and first years of the Galaxy products. Mr Ben-Ari holds an MBA from the Kellogg-Recanati School of Business.

Rajesh Kothari, general manager Sarine India. Mr Kothari is responsible for the overall management of the operations and business in India. He has over 25 years’ experience in the diamond industry and prior to joining Sarine in 2013, was head of global manufacturing for Shrenuj & Co a diamond manufacturer listed in India.

Exhibit 10: Major shareholders and free float


Ownership (%)

Mondrian Investment Partners


Harel Ehud*


Stark Hanoh*


Fidelity International (FIL)


Wang Wu Huei


Eshed Avraham*


Mashiah Eyal*


Glinert Daniel*


Levami Uzi*


Baillie Gifford


Free float**



Mondrian Investment Partners

Harel Ehud*

Stark Hanoh*

Fidelity International (FIL)

Wang Wu Huei

Eshed Avraham*

Mashiah Eyal*

Glinert Daniel*

Levami Uzi*

Baillie Gifford

Free float**

Ownership (%)












Source: Bloomberg and Sarine. Note: *Sarine directors and recently retired directors. **As at 17 March 2017.


Profitability of midstream manufacturers. The majority of Sarine’s customers are midstream manufacturers in India, which command thin profit margins in the low single digits. As witnessed in 2015, revenues are very sensitive to the health of this industry segment, which can be affected by factors including the pricing and supply of rough stones, the pricing and demand for polished diamonds, and the availability of financing for working capital. Over time revenues can become less dependent on equipment sales to the midstream industry as the proportion of recurring revenues increases and as the company diversifies its customer base into the downstream segment of the industry.

Global growth trends. As a luxury good, end-demand for polished diamonds is sensitive to the macroeconomic environment. The US continues to be the most important market, accounting for 45% of polished diamond demand by value in 2015. More volatile demand comes from the second and third largest markets of China (14%) and India (7%), where government policies also pose risk as witnessed by a sharp downturn in luxury goods spending in China in response to an anti-corruption campaign in 2014 and 2015. Demonetisation in India could have potentially disrupted demand, although the company observes this has not been the case so far and does not view this as a significant risk factor.

Infringement of copyright. Sarine’s products are proprietary and its ability to maintain its leading market position is dependent on its ability to protect its intellectual property. Although Sarine has registered numerous patents and trademarks in countries key to its businesses, enforcement is key. The company is currently pursuing infringements and pirating of software packages, particularly for the Advisor rough planning software. As part of its IP protection strategy, the company has designed more protective features for its systems, based on cloud computing technology, with key components remotely located on cloud servers, not on installed systems.

Liquidity. Sarine’s shares are relatively illiquid. For the year to end April 2017 the stock traded an average value of US$230,000 per day.

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Atossa Genetics — Funded into Q417, endoxifen now in Phase I

Atossa raised $4.4m in April 2017 in an equity raise consisting of common shares, Series A convertible preferred shares (SACPS), and warrants. We believe the proceeds should extend its cash runway into Q417 as it advances its 30-patient Phase II study on IDMC-delivering fulvestrant in patients scheduled for mastectomy or lumpectomy, and its 48-patient Phase I trial on endoxifen. We obtain an rNPV-based equity valuation of $9.3m.

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