A CRISIL Ratings analysis of 58 organised gold jewellery retailers predicts a 22-25% revenue increase this fiscal year, driven by a sharp reduction in import duty to decadal lows. This growth, which is 500-600 basis points higher than the previously estimated 17-19%, follows the Union Budget’s duty cut, resulting in lower retail gold prices and boosted demand.
The price drop may lead to inventory losses on existing stock, but improved demand is expected to offset this, reducing the need for extensive marketing and promotional expenses. Operating profitability is projected to decline by 40-60 basis points, stabilising at 7.1-7.2%.
Lower gold prices will also ease working capital requirements, despite planned store expansions. The 58 retailers assessed by CRISIL account for about a third of the organised jewellery sector’s revenue, and their credit profiles are expected to remain stable.
Since February 2024, rising gold prices had dampened demand, with retailers relying on higher realisations to drive revenue. However, the 9% import duty cut in July 2024 (from 15% to 6%) led to a price drop of ₹4,500-₹5,000 per 10 grams, improving affordability. As a result, jewellery retailers may see a 3-5% rise in volumes, compared to the previously flat growth projections. Gold prices remain around 17% higher than last year’s average, and with the festive and wedding seasons approaching, sales are expected to increase in the second half of the fiscal year.
Himank Sharma, Director at CRISIL Ratings, commented, “The duty cuts to decadal lows have come at the right time for retailers as they prepare for the festive and wedding seasons. While there will be some inventory losses due to the price cuts, these will be mitigated by lower marketing and discount spending as demand picks up. Profitability will see a marginal decline to 7.1-7.2%.”
Gaurav Arora, Associate Director at CRISIL Ratings, noted, “Retailers will maintain strong financial metrics this year, with total outside liabilities to tangible net worth (TOL/TNW) and interest coverage ratios expected to remain around 1.0 and 9 times, respectively. These figures will be slightly better than our earlier projections, keeping credit profiles stable.”
However, sharp fluctuations in gold prices, regulatory changes, and shifting consumer sentiment will be key factors to monitor going forward.
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