Organised Gold Jewellery Retailers Forecast 22-25% Revenue Surge Amid Duty Cuts

Organised gold jewellery retailers are set to experience a revenue surge of 22-25% this fiscal year, fueled by substantial import duty cuts on gold. This favorable financial outlook, according to CRISIL, is driven by lower gold prices, effective working capital management, and increased consumer demand during the festive season.

Revenues for organised gold jewellery retailers are projected to jump by 22-25% this fiscal year, driven by substantial import duty cuts on gold implemented in the July Budget, according to a CRISIL report. An analysis of 58 gold jewellery retailers by CRISIL Ratings, accounting for a third of the organised sector's revenues, suggests that the sector will benefit from enhanced working capital management.

Many retailers are planning significant store expansions, estimated at 12-14% of existing stores. The lower gold prices will reduce inventory costs, providing working capital relief. The organised jewellery sector, representing just over a third of the total market, is poised to outperform its unorganised counterpart financially.

The steep import duty reduction comes at a crucial period as retailers gear up for the festive and marriage seasons. Following the price decline, volumes are expected to grow by 3-5% this fiscal year, overturning earlier stagnant demand projections. Gold prices had risen since February 2024, suppressing consumer demand and leading to revenue growth driven solely by higher realisations rather than increased sales volumes. Himank Sharma, Director at CRISIL Ratings, noted, '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.'

Sharma added that inventory losses due to price cuts will be partially offset by reduced spending on marketing and discounts as demand revives. Despite a marginal dip in profitability to 7.1-7.2%, retailers' cash flows will improve due to higher revenues, supporting expansion plans. Store expansions, set to rise by 12-14%, will require higher inventory levels. However, lower input costs from reduced gold prices will balance the additional working capital demands. Gaurav Arora, Associate Director at CRISIL Ratings, stated, 'Gold jewellery retailers will maintain comfortable financial metrics this fiscal, with total outside liabilities to tangible net worth (TOL/TNW) and interest coverage ratios around 1.0 and 9 times, respectively. These will be moderately better than our earlier expectations, keeping credit profiles stable.'

Gold prices, approximately 17% higher than last year's average, are expected to sustain demand and drive revenues in the latter half of the fiscal year. Nevertheless, potential gold price volatility, regulatory changes, and shifts in consumer sentiment must be monitored closely. The combination of reduced prices, increased demand, and improved working capital management is expected to maintain a positive financial outlook for gold jewellery retailers, despite a slight dip in profitability. The duty reduction has lowered retail gold prices by Rs 4,500-5,000 per 10 grams, spurring increased demand for gold jewellery. Growth projections, 500-600 basis points higher than previous estimates of 17-19%, are fueled by higher volumes as consumers are drawn in by lower prices.

(With inputs from agencies.)