Organised gold jewellery retailers are expected to record a revenue growth of 22-25 per cent on-year this fiscal, which is 500-600 basis points (bps) more than the 17-19 per cent expected earlier, stated a report by CRISIL Ratings. The projection was corrected following the sharp reduction in import duty announced in the full Union Budget. The incremental growth, CRISIL added, will be driven by higher volumes even as retail gold prices come down from their lifetime highs.
While maintaining that the sudden price decline could lead to some inventory loss on existing stock, CRISIL added that the impact would be partially mitigated as improved demand limits spending on marketing and promotional campaigns. Operating profitability will moderate by 40-60 basis points (bps) to 7.1-7.2 per cent, the report added.
Organised gold jewellery retailers will gain from reduced inventory due to lower prices in the form of working capital, even as the industry had significant store additions in plan.
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CRISIL Ratings analysed 58 gold jewellery retailers, which account for a third of the revenue of the organised jewellery industry, to release these findings. The orgnised sector accounts for slightly more than a third of the market, with the highly fragmented unorganised sector making up the rest.
Gold jewellery demand had remained tepid with continuous gold price rise since Feb 2024 and the revenues of retailers have been driven by higher realisations. However, the announcement of the duty cut from 15 per cent to 6 per cent, a whopping 9 per cent decline, led to a fall in retail gold prices by Rs 4,500- Rs 5,000 per 10 gm in the fourth week of July 2024, the report stated, while maintaining that this resulted in better affordability for the purchasers and hence volumes may rise 3-5 per cent this fiscal, on-year, for gold jewellery retailers, as compared to flattish volumes assumed earlier in May 2024.
That said, gold prices remain higher than last year’s average by approximately 17 per cent and are expected to remain firm as the festive and wedding seasons approach, driving H2 sales of jewellery retailers higher than the H1 of each fiscal, CRISIL stated.
“The duty cuts to their decadal lows have come at an opportune time for the gold jewellery retailers as they start stocking for the festive and marriage seasons from the latter half of August. However, the inventory losses on the existing stock due to the price cuts will be partially mitigated by the reduced spends on marketing and discounts, as demand revives. All said, profitability will see a marginal dip on-year to 7.1-7.2 per cent,” said Himank Sharma, Director, CRISIL Ratings.
Per the report, while the profitability will be lower, the cash flows of retailers will improve with higher revenues, allowing them to take up store expansion, which was seen at 12-14 per cent of existing stores this fiscal. Still, working capital requirements will likely remain flattish as higher inventory requirements due to increased store counts will be partly offset by lower input prices, it added.
Gaurav Arora, Associate Director, CRISIL Ratings, said, “Gold jewellery retailers will maintain comfortable financial metrics this fiscal, with total outside liabilities to tangible net worth (TOL/TNW) and interest coverage ratios remaining around 1.0 and 9 times, respectively. These will be moderately better than our earlier expectations, keeping credit profiles stable.”
All said, CRISIL added, any sharp volatility in gold prices, further changes in government regulations and import duties on gold, as well as consumer sentiment will bear watching.
From: financialexpress
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